Monday, September 24, 2007

Slap on the face of banking reforms

60 years of independence; Even more years of Indian Banking. But reforms have done little to save our folks from the clutches of loan sharks.

Each time a farmer commits suicide, there is the obligatory reference to high interest rates charged by the usurious moneylender. Predictably, two standard courses of action follow. First, public sector banks are asked to increase their footprint (after the usual ex gratia payments are made to the bereaved families) and two, demands are made to monitor (it used to be ‘regulate’) moneylenders and their activities. While the first is a good thing, it is irrelevant in the current context; the second would be disastrous, given how many households in the country are dependent on moneylenders.

IIMS Dataworks’ Invest India Incomes and Savings Survey 2007 throws up some interesting findings in this context. Of every 100 persons who have taken loans in the country over the last two years, 31 per cent have got loans from moneylenders, compared to 20 per cent from banks.

The short point is that, until institutional mechanisms develop to meet the credit needs of people with different needs (including subprime category) the moneylender is meeting very real needs.

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