Loans and melas are of different genres. While one is more about a process, the other is about public show. When policy tries to bring them together, the blend might not turn out well. Such programmes, widely prevalent in the 1980s, were symptomatic of overbearing politics that faced intense criticism for diluting the loan procedures and denting credit culture, eroding the moral fabric of financial relationships. These programmes were ridiculed for good reasons, but now there is a case for looking at this subject with a different perspective, in the background of the changed context.
Loan melas are an extension of social banking, which is an outcome of the idea of bank nationalisation that originated in the political context of that time. It was consistent with the trends in the 1970s when nationalisation was virtually an everyday feature in many developing economies, and the government assumed a larger role in a nation’s capacity building. Finance is just one extension of this aspect.
Social banking
Famous economist Joan Robinson might have said: “Where enterprise leads, finance follows”, but in view of the birth of development finance following World War-II, she felt persuaded to view finance as an agent leading to growth and poverty reduction. Perhaps it is this premise that guided nationalisation in promoting India’s financial development. Banking sector performance was assessed in terms of certain key features: size as measured by depth, access to financial services for individuals and businesses, efficiency in service to intermediaries, and finally the vital aspect of financial stability.
The positive outcome of depth and efficiency in promoting growth and reducing poverty was reiterated by a comprehensive survey of literature by ADB, which observed that “there are convincing arguments that financial sector development plays a vital role in facilitating economic growth and poverty reduction, and these arguments are supported by overwhelming empirical evidence from both cross-country and country-specific studies”. Another study covering 71 developing countries during 2002-11 showed banks could be more effective in reducing poverty by headcount and poverty gap than microfinance. Multilateral financial systems like the World Bank and IMF too earmark 10 per cent each of their loans and assistance, respectively, to conditionalities complying with social protection. Thus, the merit in social banking and some of its extensions cannot be overlooked, as private finance — despite three decades of reforms — was more in the realm of value pursuit rather than in the pursuit of public interest, notwithstanding scandals seen both in the public and private sectors.
Earlier shortcomings
Earlier, credit programmes to create assets and economic activities for the poor were given major thrust. The flagship Integrated Rural Development Programme was launched in 1980 with great ambition. Several others followed, such as the 20-Point Economic Programme, Differential Rates of Interest and special programmes for self-employment (TRYSEM), women (DWCRA) and skill development among rural youth (SITRA) all of which along with the IRDP were restructured in 1999 as the Swarna Jayanti Gram Swarojgar Yojana. When enough momentum in credit creation and the expected outcome was not reached with all these efforts, special campaigns to disburse loans were launched, one of which was loan melas .
The catch in the earlier versions of loan melas was that beneficiaries and activities suitable for them were often drawn up by local government agencies, with banks entrusted with financing them. A major shortcoming was that economic activities which were expected to be identified in accordance with availability of infrastructure and support systems were not given due attention.
Focus on targets without assessing viability induced corruption and nepotism, and loans to unproductive businesses dented credit discipline. It is in this context the loan melas came up for derision.
Revamping the concept
However, this time the outcome could be made different with a little bit of effort and imagination. Now the operational environment has vastly changed. The experience of nearly four decades of rural and small business finance, half a decade of the Jan Dhan programme, rise of alternative players in the form of microfinance, non-bank finance, and cooperatives and pervasive technology, etc., could bring in the big change.
What’s more important is that the branch that as a centrifugal force of these loan programmes, without being pushed by pressures of local agencies as in the past, can give them enough space and bandwidth to ensure speech, quality and sustainability. Surely, the government can think of adding up a few more positives to the programme.
There is a need for a ‘rural and small business finance network’ that could be a repository of information and data on the wide gamut of rural financial markets. It could use emerging technologies in the realm of customer profiling, assessment and evaluation, and track progress and performance which can be accessed by institutions and government for periodic review and programme development.
Bank Rakyat Indonesia, that achieved a distinction for rural finance in South-East Asia, had this practice of recruiting the best of the MBAs for initial posting in rural areas, with achievements here forming the basis for placements, positions and promotions. The challenge of rural finance can be better managed by enthusiastic and energetic young officers than those posted past their prime or before retirement, which often is the case in many PSBs.
Equally pertinent is development of products and services that could harness potential in rural and semi-urban areas. The need for products with features of safety and stability along with scope for generating strong and sustainable investments is what is essential. In the early stages of even developed economies, it is the products with stable returns that generated huge investments needed for growth.
When President Lula of Brazil launched ‘Bolsa Familia’ in 2002, the mainstream economists debunked it, and markets discounted it as yet another debacle. Yet this programme benefits nearly 50 million people every year operating in 5,570 municipalities with a network of 1,76,000 local operators that remained successful for more than 15 years, and is becoming a model for other countries.
When programmes of conditional cash transfers can become successful why can’t loan programmes, even if disbursed en masse ? If the issue is that the concept of a loan mela may sound desi and down-market, then how about the new-fangled ‘Programme for Accelerated Credit and Employment (PACE)’?
The writer runs the consulting firm ‘Growth Markets Advisory Services’. Views are personal