The Banking System and Rural India · The Banking System and Rural India MODERN economy may he...
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The Banking System and Rural India MODERN economy may he called "bank economy". The banking system spares the individuals and tile communities the trouble of stock- piling bulky chattels and enables them to attain domestic security and transact business by means of ever- negotiable bank accounts. For once it has been necessary to say the obvious, because banking has been the target of vicious poli- tical attack and multi-slinging from Left and Right over several decades. However, banks were functioning in the Fascist and National Socialist countries yesterday in spite of their repeated denunciation of "interest slavery". They are operating in the Communist countries today, in spite of some of the more picturesque propagandist allegations, comparing bank directors to leeches. That politicians on the extreme Right as well as the extreme-Left ended up by adapting, instead of destroying, the hated banks, is no indication of a change of heart. They may have merely discovered that banks are indispensable for the administration of an up-to-date eco- nomic system, whatever the political complexion, racial composition or social philosophy of the government. It is not a mere theory, but a very tangible fact that banks, as the co- ordinating centres and observation posts of economic activities, trans- cend national as well as ideological frontiers in this modern age. At the present stage of development, banks are alone capable of ushering the surplus production, — and surplus production does exist even in the poorest districts of the poorest coun- tries — into productive investment and thus promote technical progress and human welfare. When we speak about "underdeveloped" territories, we could more accurately use the term ''under-banked" territories. The principal cause of India's economic plight is therefore the melancholy fact that eighty per cent of the country has so far remained outside the banking network. It is, in consequence, a vital problem, and not just for a certain section of the public, but for the entire nation, what can be done to extend the banking facilities to the rural areas? There is hardly any circulation of money in the very small villages, even where the population is not exactly poor. The local labourers and craftsmen receive payments in kind, so does the village Brahmin for his religious services. Even the village bania may not be able to change one single rupee-note. In the larger villages or smaller townships, however, there is a con- siderable volume of commerce, busy bazars, even some industry. There are usually several large, comfortable and recently re-decorated houses testifying to the material well-being of the inhabitants. In such locali- ties there must be Some amount of bankable savings which could be profitably integrated into the blood- stream of the national economy. The Barclays Bank from London had recently a very encouraging ex- periment with its publicity campaign in Nigeria. They used the medium of the film screen, simple language and witty cartoons. Since there are at least occasional cinema shows in the larger Indian villages also, the experience of the Barclays Bank may have some bearing on the stra- tagem to be devised for this country. However, making people bank-cons- cious is only part- and the smaller pari—of the problem here. The real difficulty is how to make bank- ing services available to the well-to- do in the rural community. The opening of branches by the large banks in the villages—even in the largest ones would not be a practical proposition for a very long lime to come. A novel approach has therefore to be devised for the injection of the hidden wealth in the countryside into the veins and arte- ries of the nation's financial system. The best solution, in theory at least, appears to he the establish- ment of a "Rural Banking Society" with the participation of India's leading banks. While direct Gov- ernment association with the project might not be desirable, the official circles would have a finger in the pie through the State Bank of India in any case. Such an agency could set up its offices in some of the prosperous rural and agricultural centres, pre- ferably in co-operation with several leading local merchants and farm- ers whose presence on the board would create popular confidence. While banks, according to the natu- ral scheme of things, usually seek to collect deposits before granting loans, in the case of rural India we may have to put the cart before the horse for the sake of long-term benefits. Even by granting local loans with the maximum of security and mak- ing investments with the minimum of risk, the Rural Banking Society would create in the villagers the necessary goodwill towards itself and its operations. 'Green Credit' to farmers against the new crop, the financing of small fruit-bottling plants in the hilly regions, fish- tanning works at the seaside places, land reclamation and improvement projects in the purely agricultural districts could offer a suitable outlet for short-term, comparatively safe and potentially lucrative exploratory activities. Once the villagers are convinced that the Rural Banking Society is a helpful friend and a wise counsel, the possible initial distrust will melt and the local cash will find its way from underground hide-outs, hay- slacks and pillow cases into the sav- ings books and current accounts. Especially if the "exploratory invest- ments" by the Rural Banking So- ciety prove effective in increasing the villagers" income, the borrowers of yesterday will come forward as the depositors of tomorrow. The new Society will thus gradually unify the hitherto separated economies of urban and rural India for the bene- fit of both. Obviously there would not be enough funds and experienced per- sonnel to cover the entire country with Rural Banking Societies right from the beginning. However, It would certainly be worth the while and the risk to inaugurate a small pilot project in one of the reason- ably prosperous and comparatively "dacoit-proof" areas. While the government has undertaken numer- ous commendable schemes to utilise the vast natural resources of the sub-continent, the lime has come to attempt the mobilisation of the hitherto equally untapped financial resources of India's extensive ''backwoods''. 1083 George A Floris THE ECONOMIC WEEKLY July 2, 1960
Transcript of The Banking System and Rural India · The Banking System and Rural India MODERN economy may he...
The Banking System and Rural India
M O D E R N economy may he called "bank economy" . The bank ing
system spares the ind iv idua ls and ti le communit ies the t rouble of stockp i l i ng bu lky chattels and enables them to attain domestic security and transact business by means of ever-negotiable bank accounts.
For once it has been necessary to say the obvious, because bank ing has been the target of vicious pol i t ical attack and multi-slinging f r om Lef t and Right over several decades. However, banks were func t ion ing in the Fascist and Nat ional Socialist countr ies yesterday in spite of their repeated denunciat ion of " interest s lavery" . They are operat ing in the Communist countries today, in spite of some of the more picturesque propagandist al legations, compar ing bank directors to leeches.
That pol i t ic ians on the extreme Right as wel l as the extreme-Left ended up by adapt ing, instead of destroying, the hated banks, is no indicat ion of a change of heart. They may have merely discovered that banks are indispensable for the admin is t ra t ion of an up-to-date economic system, whatever the pol i t ica l complexion, racial composit ion or social phi losophy of the government.
It is not a mere theory, but a very tangible fact that banks, as the coo rd ina t ing centres and observation posts of economic act ivi t ies, transcend national as wel l as ideological f ront iers in this modern age. At the present stage of development, banks are alone capable of usher ing the surplus product ion, — and surplus product ion does exist even in the poorest distr icts of the poorest countr ies — into product ive investment and thus promote technical progress and human welfare. When we speak about "underdeve loped" terr i tor ies, we could more accurately use the term ' ' under -banked" terr i tor ies.
The p r i nc ipa l cause of India 's economic p l igh t is therefore the melancholy fact that eighty per cent of the country has so far remained outside the bank ing network. I t is, in consequence, a v i ta l p rob lem, and not just fo r a certain section of the publ ic , but for the ent i re nat ion, what can be done to extend the bank ing faci l i t ies to the ru ra l areas?
There is hardly any c i rculat ion of money in the very small vi l lages,
even where the popu la t ion is not exactly poor. The local labourers and craftsmen receive payments in k i n d , so does the vil lage Brahmin fo r his rel igious services. Even the vi l lage bania may not be able to change one single rupee-note.
In the larger villages or smal ler townships, however, there is a considerable volume of commerce, busy bazars, even some industry . There are usually several large, comfortable and recently re-decorated houses test i fy ing to the material wel l -being of the inhabitants. In such localities there must be Some amount of bankable savings wh ich could be p ro f i tab ly integrated into the bloodstream of the national economy.
The Barclays Bank f r o m London had recently a very encouraging experiment wi th its publ ic i ty campaign in Niger ia . They used the medium of the f i lm screen, simple language and wi t ty cartoons. Since there are at least occasional cinema shows in the larger Ind ian vil lages also, the experience of the Barclays Bank may have some bearing on the stratagem to be devised for this country . However, mak ing people bank-conscious is only p a r t - and the smaller pa r i—o f the problem here. The real difficulty is how to make banking services available to the well-to-do in the rura l communi ty .
The opening of branches by the large banks in the vi l lages—even in the largest ones would not be a pract ical proposi t ion for a very long l ime to come. A novel approach has therefore to be devised for the in ject ion of the hidden wealth in the countryside into the veins and arteries of the nation's f inancial system.
The best solut ion, in theory at least, appears to he the establishment of a " R u r a l Bank ing Society" w i th the par t ic ipat ion of India's leading banks. Wh i le direct Government association w i th the project might not be desirable, the official circles would have a f inger in the pie through the State Bank of Ind ia in any case.
Such an agency could set up its offices in some of the prosperous rura l and agr icu l tura l centres, preferably in co-operation w i th several leading local merchants and fa rm-ers whose presence on the board
would create popular confidence. Wh i l e banks, according to the natural scheme of things, usually seek to collect deposits before grant ing loans, in the case of rura l Ind ia we may have to put the cart before the horse for the sake of long-term benefits.
Even by grant ing local loans wi th the max imum of security and making investments w i th the m i n i m u m of r isk, the Rural Bank ing Society would create in the vi l lagers the necessary goodwi l l towards itself and its operat ions. 'Green Credi t ' to farmers against the new crop, the f inancing of small f ru i t -bo t t l i ng plants in the h i l l y regions, fish-tann ing works at the seaside places, land reclamation and improvement projects in the purely agr icu l tu ra l distr icts could offer a sui table outlet for short- term, comparat ively safe and potential ly lucrat ive exploratory activi t ies.
Once the vi l lagers are convinced that the Rural Bank ing Society is a he lp fu l f r iend and a wise counsel, the possible in i t ia l distrust w i l l melt and the local cash w i l l find its way f rom underground hide-outs, hay-slacks and pi l low cases into the savings books and current accounts. Especial ly i f the "exp lo ra to ry investments" by the Rural Banking Society prove effective in increasing the villagers" income, the borrowers of yesterday w i l l come forward as the depositors of tomorrow. The new Society w i l l thus gradual ly uni fy the hi therto separated economies of urban and rura l Ind ia fo r the benefit of both.
Obviously there would not be enough funds and experienced personnel to cover the entire country wi th Rural Banking Societies r ight f rom the beginning. However, It would certainly be worth the whi le and the risk to inaugurate a small pilot project in one of the reasonably prosperous and comparat ively "daco i t -p roo f " areas. Wh i l e the government has undertaken numerous commendable schemes to util ise the vast natural resources of the sub-continent, the l ime has come to attempt the mobi l isat ion of the hi therto equally untapped f inancial resources of Ind ia 's extensive ' 'backwoods' ' .
1083
George A Floris
THE ECONOMIC WEEKLY July 2, 1960
