Articles by P Satish

It is not the sterilisation operations of the Reserve Bank of India, but policy changes agreed to by the Government of India and the central bank in the early 1990s which have led to a smaller fl ow of funds to the National Bank for Agriculture and Rural Development.

The negative policy on credit for agriculture and other priority sectors, which has been prevalent since the beginning of the post-reform era, has manifested itself in three broad areas: the enervation of the institutional architecture for rural credit, disincentivisation of credit flow to agriculture through the mechanical application of Basel norms and the squeeze on resources available for agricultural credit operations. This paper discusses these areas and also the experience of a couple of advanced economies. It suggests a set of reforms which will reverse the policy coarctation for agricultural credit. It argues that the successful promotion of the deepening of rural financial markets, which would ensure uninterrupted flow of credit to agriculture will require systematic rather than isolated efforts, with related actions being undertaken on several fronts.

A significant feature of microfinance in India is that it has been built upon the existing banking infrastructure. In the process, it has obviated the need for the creation of a new institutional set up or introduction of a separate legal and regulatory framework. In the linkage model, the financial resources are being sourced from regular banking channels as well as members' savings. Thus the problems related to regulation and supervision of microfinance institutions (MFIs), the accessing of public deposits by MFIs and reliance on donor and grant funding are obviated. With the group acting as a collateral substitute, this model also overcomes the intractable problem of collateral provision by the poor. It has to be realised that microfinance is a means or an instrument for development, not an end in itself. To assess the extent to which Indian microfinance has been able to achieve the goal of poverty eradication and fulfil its role as a means for development, requires in-depth impact assessments on an ongoing basis.