Written by Dr. Amrit Patel, consultant to the World Bank and the International Fund for Agricultural Development (IFAD), and Dr. Gopal Kalkoti, economic consultant for the All India Association of Educational Research (AIAER), this nine-page study of the Indian rural microfinance sector was released in November 2007. Based on government surveys conducted over the past two decades, the publication evaluates the current state of rural finance in India and suggests improvement measures. Available at: http://microfinancegateway.org/content/article/detail/39605/
The two major factors affecting the success of Rural Finance Institutions (RFIs) are the lack of efficient, low-cost operational solutions and India’s overall weak agricultural infrastructure.
Cost-effective banking solutions include increased availability of ATMs as well as mobile phone and internet banking options. Development and experimentation with alternative financial products such as insurance, flexible savings, leasing products and overdraft lines are also means if improving RFI efficiency.
Currently, about sixty-five percent of India ’s population live in rural areas and depend on agriculture as a means of living. The average farmer may earn only up to seventy-six USD per month after successful yields. Less than a third of farm holds are wholly irrigated, and poor transportation infrastructure and the threat of pests, floods and other natural disasters are a huge obstacle for rural investment.
In order to create an “enabling environment” for the development and success of rural microfinance institutions, the Indian government is urged to invest in infrastructure reforms. These reforms include full development of irrigation systems, soil conservation, improved drainage systems, flood-control measures and improved transportation infrastructure in the form of all-weather roads. Improved productivity can also be achieved through research in biotechnology and the establishment of quality standards for seeds, fertilizers and pesticides. With public investment and thus significant strengthening of agricultural infrastructure, private sector investments will increase, and RFIs can achieve sustainability.
It is also expressed in the document that there is currently too much pressure on the land for agricultural development. The current rural infrastructure cannot support the number of farmers, thus there is an urgent need to reduce the number of farmers by thirty percent in the next five years and to create new self-employment opportunities in other economic sectors such as handicraft, silk, tea, coffee and rubber.
The authors cite an immediate need for the Indian government to facilitate the development and expansion of rural microfinance institutions to service the growing demand for rural financial products and services not limited to agriculture.
By Melissa Duscha
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