At a recent workshop on “Microfinance and Rural Development” held at Ramjas College, Delhi, Nitin Chaudhary from IFMR Rural Finance had the opportunity to chair one of the sessions that was attended by students of Ramjas College and St. Stephen’s College.
Students screened a documentary made on micro-credit based on Grameen Bank, Bangladesh, and a presentation on Joint Liability Group Loans and Self-Help Group – Bank Linkages that are the two major models of micro-credit in India. Participants actively involved themselves in the discussions making the sessions very lively.
Nitin who spoke at the workshop made a distinction between micro-credit and microfinance in terms of both products and utility to customers. He explained, given that the function of finance is to move resources across time, space and states, micro-credit would help customers to only move resources from future to the present time, while the customer would still have to find ways to move resources from current to future, or from location to location or from a time of normal activity to a crisis etc. In terms of products these functionalities would be called Savings, Investments, Remittances and Insurance, which along with Loans make up microfinance.
He emphasized that access to finance is a state of mind and has been known to significantly impact the decision-making process of a household and also its risk taking ability.
Highlighting that in India, roughly 70% of the population lives in sparsely populated rural habitations and despite the efforts of the banking sector in spreading branch networks over the past 4 decades, only 40% of the population has bank accounts, a majority of which are of people who live in densely populated urban locations; he stressed the urgent requirement in providing the rest of the population with Savings, Investments, Remittances and Insurance products. While MFIs have been active over the past decade, and have succeeded in reaching a large number of unbanked population, their intervention has been largely restricted to one product – the Joint Liability Group Loan, he felt.
He summed up his talk by stressing the need for innovation in design of a channel that provides reliable, convenient, flexible and continuous access to finance, which would meet the complete financial needs of the household thus spurring rural development.