RBI takes lessons from unbanked villages………Shiva Lingam Makhanwindi, Amritsar
The Reserve Bank of India’s (RBI) year-long outreach programme has equally benefited central bank’s top officials, who fanned out to remote interiors of the country to educate villagers on benefits of being a part of the financial system.
“We find it (outreach programme) a very useful way of learning about what is going on in the country,” said Subir Gokarn, RBI’s deputy governor. He spoke about his outreach experiences during a tour of Makhanwindi village in the district of Amritsar.
“The visit also helps in coordinating with local banks to achieve the inclusion strategy,” said Gokarn. The villagers of the tradition-bound farm economy of the region honoured the central banker with the turban.
Gokarn ruled out end to such tours once RBI meets its target of providing banking services to all villages with a population of 2,000 by 2012. “These outreach programme is part of our way of participating in the inclusion strategy. I can see myself doing it (outreach tour) for as long as I get a chance to visit the places like this,” said Gokarn, who has toured six villages as part of the outreach tour.
“It gives me a different perspective from what I see from the RBI headquarters.
“It gives me a sense of reality and I get to know the constraints at the ground level. Without that understanding, I do not think our inclusive strategy is going to be very effective,” Gokarn said.
RBI calls its outreach programme, tried out for the first time in its 75 years of existence, as financial literacy and financial inclusion programme.
RBI governor D Subbarao, his four deputy governors and top officials fan out to interiors of the country, especially to villages where banking system is absent.
The programme, launched a year ago, aims to educate villagers on benefits of being a part of the financial system through a bank account. Such tours have also benefited bankers to hear from villagers their requirements and aspirations.
Outreach to help save the poor from new shylocks……Shiva LingamMakhanwindi Amritsar
The Reserve Bank of India’s (RBI) outreach programme to network India’s poor into the banking system has the potential to transform rural India and parachute the poor safely from clutches of traditional moneylenders and modern shylocks in the form microfinance institutions.
“There are many benefits that will come from bringing people into the financial network,” said RBI deputy governor Subir Gokarn referring to higher interest rate that poor pay.
“It is for all agencies to take full advantage of access that bank account provides. That is why we are working with commercial banks…to provide the access of bank accounts to poor.”
The potential of expanding bank network to poor could be gauged from the fact that microfinance institutions that lend money to poor farmers and small traders have come under cloud for reportedly charging interest as high as 40%.
Although, lower than rates charged by traditional moneylenders, MFIs’ role in uplifting living standard of poor has come into sharp question.
Access to banks by the poor is critical, as state-owned banks charge from them as low as 4%, said Gokarn.
His comments came on the heel of Andhra Pradesh government ordinance that seek to restrict activities of MFIs in the state, making it difficult for MFIs to forcibly recover loans from borrowers and also cap interest rates charged.
Both MFIs and moneylenders use strong arm tactics to collect interest and the principal amount. This has reportedly forced many poor to commit suicidea charge denied by MFIs.
Shylock is character of a wicked loan shark in Shakespeare’s ‘The Merchant of Venice’ story. No wonder, the RBI has appointed a sub-committee to look into the working of MFIs.
RBI governor D Subbarao told reporters there were huge debates on high interest rate that MFIs charge.
“There is a view if banks had covered the last mile, many of the clients of MFI would probably get access to institutional credit at cheaper rate,” said Subbarao, justifying the central bank’s attempt to encourage the country’s poor to embrace banking network.
What is outreach programme of the central bank?
RBI calls its outreach programme as financial literacy and financial inclusion program that involves governor Subbarao, his four deputy governors and top officials to tour villages across India where banking system is absent.
RBI’s outreach programme is an attempt to cover that last mile, as business correspondents of banks would reach doors of villages to operate their bank accounts.
Once the poor have access to banks, the gains would also accrue in the form of targeting of various government subsidies to intended beneficiaries through direct transfer of funds.
This would bypass intermediaries who siphon-off funds meant for the poor.