Part II: Low-Cost Banking A Must In Odisha’s Rural Areas
In Odisha, the success of BCs/micro lenders is a bag of mixed stories. Replacing micro lenders has proved expensive and unviable. There is a huge mass of people without the basic banking facilities and banks alone cannot meet these needs. The attempt should be to build very low-cost structures with a focus on improving efficiency in systems, processes, technology and cutting cost to reach the last mile.
For Odisha, this policy has added meaning. In Odisha, there is even an increasing recognition that the institutional initiatives need to deliver, reduce the extent of rural poverty and thus invigorate further the engagement of the Panchayati Raj institutions.
Odisha has been taking historic actions to strengthen, support and sustain grassroots governance across the Zilla Parishads since October 2012. Village meetings (Palli Sabhas) and Gram Sabhas are being organised on a “mission mode” to make them genuinely meaningful and participatory. Traditionally, people have never demanded and decided the kind of development work they want in their areas, something which is historic — a first not only for the state but the entire country. In this October Revolution, villages across the state held Palli Sabhas and discussed local problems, deliberated on government welfare schemes, listed works they want and staked claims to various benefits under these schemes. These lists were subsequently shared with the respective Gram Sabhas, deliberated and finalised with five-year perspective plans and an annual action plan for 2013-14.
With the growing relevance and significance of Panchayat systems in Odisha, the opening of the banks would give fillip to rural governance. Commercial banks opening their branches in unbanked Panchayats will be given access to government funds meant for the Panchayat and this in turn would result in greater transparency and inclusion.
There is always a nagging apprehension that a considerable sum of money that is meant for the poorest of poor does not actually reach them. While this money moves through a complex system of government, much of it is widely believed to leak and is unable to reach the intended parties. The government is therefore, pushing for direct cash transfers to beneficiaries through their bank accounts rather than subsidising products and making cash payments.
This is expected to considerably reduce the government’s subsidy bill and provide relief only to the real beneficiaries. This financial inclusion policy is expected to provide an efficient and affordable banking system that can reach out to all. Hence there should be unprecedented accuracy in targeting and in the quality of outreach at the Panchayat and sub-Panchayat level. Even today, the informal channels of credit, like family, friends and moneylenders rule the roost amongst the unbanked population. With the availability of adequate and transparent credit from formal banking channels, the low income population would be encouraged to adapt entrepreneurship and self-employment, which in turn would certainly increase output and prosperity in the countryside.
Reducing the financial vulnerability of the poor is worth much more than sops for the poor. Banking the unbanked would add muscle to the efforts Odisha has put in bringing about a turnaround in its plummeting economy and it is indeed praiseworthy.
The 1980s saw the state under a spell of dangerous crony capitalism, rampant and unprecedented corruption, complete erosion of social security, deliberate neglect of underdeveloped areas like the KBK region and the resultant decay in Odia traditional ethics, social culture and self-esteem.
In the last 15 years, we have limped back to normalcy as a state, with some hiccups, which are expected as a splinter of the macro national socio-political dynamics. With a budget outlay of Rs 60303.09 crore in 2013-14, the Non Plan ratio had gone up from about 27 per cent in 2006-07 to about 59 per cent in 2013-14. This is the highest ever ratio achieved by Odisha. A revenue surplus of Rs 1904.61 crore had been projected in the Budget Estimates for 2013-14, which is about 0.65 per cent of the GSDP and the Fiscal Deficit was projected at Rs 5945.13 crore, which was about 2.03 per cent of the GSDP.
Odisha has seen far-reaching changes in the last decade, and the state’s economic growth remains close to 9 per cent despite a global decline and its growth rate is one of the highest in the country.
The state has also succeeded in reducing the poverty level from 57.2 per cent of the households in 2004-05 to over 38 per cent in 2011-12. Between 2004 and 2010, Odisha recorded a 20.1 per cent decline in poverty as against a national rate of 7.4 per cent. In 2000, Odisha had the biggest fiscal deficit and debt: GDP ratio among all states. In 2002-03, Odisha had the worst Debt-GSDP ratio at 55.92 per cent.
Since then, the ratio has fallen to 17.59 per cent in 2011-12. It fell further to 16.55 per cent in 2012-13. Presently, it has become a revenue-surplus state.
According to the Tendulkar Committee Report 2009, the poverty headcount ratio of Odisha, at 57.2 per cent, has been the worst among all Indian states and much above the national average of 37.2 per cent. If factors beyond income are considered (Multi-Dimensional Poverty Index) then about 63.2 per cent of the people in Odisha have been living below the poverty line. Rural poverty, at 60.8 percent, has been significantly higher than the urban poverty, which was 37.6 per cent and the worst in India.
To fight poverty and minimise vulnerability, we have to create a platform for inculcating the habit of saving. The low-income category has been living under constant vulnerability mainly because of low savings. The availability of banking services and products boost savings. The overall capital formation in the state would increase because due to greater financial inclusion, people tend to move away from traditional savings in land, buildings, metals etc. There should be special emphasis on a few products and activities: Promotion of basic financial products and services for the financially excluded sections; products like no-frills account and entrepreneurial credit in the form of Kisan Credit Card (KCC)/General Credit Card (GCC); regulatory incentives to banks; liberalisation of interest rates and branch licensing.
If lending in rural areas does not become viable, then history would repeat. Lending in the rural areas should be a commercial proposition, otherwise the banks will not continue for long. With a large number of NGOs in Odisha, spread of financial literacy across all geographies and demographies by creating awareness about financial products and services among the population. – Use of ICTs in increasing efficiencies of the delivery models to lower the cost of transaction. There are non-profits in Odisha like FIDR, which have been working in ICTs for Development since decades.
Experienced agencies could help in strengthening the Business Correspondent model to provide doorstep delivery of financial products and services and Electronic Benefit Transfer for routing of payments of the central and state government welfare schemes like social security pensions, many other social subsidies, agri subsidies, Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS), National Old Age Pension Scheme (NOAPS) directly to the bank accounts of the beneficiaries. Remittances in districts like the undivided Ganjam, Nuapada, and Kendrapara need to be properly routed, targeted and invested. This is a policy move, which could change the face of rural poverty in no time in Odisha.
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