Rural Finance in Post-COVID Scenario: Challenges and Prospects
Credit has been considered as one of the important instruments for economic improvement. Micro credit, in this regard, has been associated with poor and marginalized section of the society. Various financial initiatives in India such as bank nationalization and introduction of Lead Bank Scheme in 1969, establishment of Regional Rural Banks in 1975-76, Service Area Approach in 1989, Microfinance in 1980s, launch of Self-Help Group-Bank Linkage Programme in 1989-90, Local Area Banks in 1996, RBI’s Banking Correspondents (BCs) scheme in 2005-06, to Pradhan Mantri Jan DhanYojana in 2014 and Jan Suraksha scheme in 2015 have made accelerated access to various financial services especially in rural areas.
India provides about $200 billion agriculture credit every year to small and marginal farmers. However, it is much less in terms of term loans; major portion is crop loans. The crop loans are mostly ever greening of the existing loans and in real term much less additional loan is provided. The real credit flow to agriculture should be significantly increased. The increasing number of recent FPOs will be a boosting factor in uptake of agricultural credit.
However, it is not only the 7P-issues of rural finance as given by Shri Harun R Khan, the then Deputy Governor, Reserve Bank of India (2014) such as product strategy, processes, partnership, protection, profitability, productivity and people; but also innovation, collaboration and adaptability continue to be challenging in rural financial sector. COVID 19 has added vulnerability to it.
With this the following questions, in this context, need special attention:
- What are the important challenges of rural finance during and post-COVID 19 period? Which rural sub-sectors are more vulnerable in this regard? What are the possible ways forward?
- What are the important challenges and way forward for financing innovation and technology adaptation in rural finance?
- How can the value chain funding in agriculture be augmented, especially when farmers anchor it?
- What are the important frontiers of financing rural sectors, which needs to be focused?