Unleashing the community potential of Indian villages

2.3 Financial
The village should ensure the proper health of its financial sector; both lending and repayment must be efficient and effective. It should ensure that finance is available at reasonable rates of interests for the village dwellers. It should ensure that the processes involved are also reasonable and fair.
Relevance:         In an economic environment that demands monetary capital for various needs, the cost of capital must be low. ... This means that the interest that one must pay should be reasonable, which can be achieved by making the entire process efficient. The system in the village must stand on its feet and at the same time be able to help the members of the village community. It must be a win-win situation. Too much burden on the givers of loans may kill the industry that is supposed to help. And too much of power in the hands of money lenders, besides being unethical, is also detrimental to the wellbeing of the villagers.
Detailed Rationale:         Through the pursuit of best practices, the Indian leadership has adopted the present capitalist system. ... In this system, a person holding capital has some advantages. (Other similar traits that offer advantages in this setup are holding knowledge, skills and degrees.) Even agriculture has now become capital-intensive; earlier, all the farmer had to do was keep some of his produce for seed. He had fertilizer and pesticides from natural sources in his village. Now, he needs to buy everything, seeds to plant, diesel to run certain equipment and even electricity (if the government does not offer it for free). If he does not invest, he is not competitive enough and may find it difficult to make ends meet. The fishermen too have to invest in nets, boats and diesel/petrol. These traditional professions are therefore encountering drastically increased possibility of losses in a way that is probably unprecedented in history. Besides this, the social dynamics ensure that families spend on marriages, dowries, various traditional festivals and sacraments, gaining prestige, buying costly utilities, buying new luxuries, etc. Moreover, families’ fragmentation leads to greater pressure on family finances that are replenished by only a single earning member. Under such circumstances, the pressure to borrow is high.

In such a situation, the pressure on individuals and families can be mitigated the village environment ensures that a healthy financial system is operational and facilitates better living. A healthy financial system also includes a healthy culture of repayment, of taking loans that are within means and of living within means. This calls for action in villages both from a commercial point of view and a cultural point of view.
Success Stories and Action:
(Share examples of villages that have succeeded with this freedom. Click here for feedback.)
Rural banking is taking off in a big way, and it is important that the villages ensure a culture of timely repayment. This will encourage low-cost lenders to operate effectively in the village environment. The Grameen Bank model is a great boon. But it needs to be implemented properly along with the right culture. The idea that each individual must have an account is a great foresight and must be pursued vigorously though it has hit some hurdles. It brings in transparency and auditability. It will also help in sound planning. The village team must ensure that at least one bank sets up shop in the village or at least actively services the village and that the probability of bad loans goes down to nil.

The possibility of enforcing the ancient tradition of Daamdupat on local lending agents in terms of gold value—which would take care of inflation—should be explored with more seriousness. Such traditional solutions could ease a lot of misery in the villages, which makes lending quite ethical.

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