ADB to help reform rural finance in India

The Asian Development Bank (ADB) is lending one billion U.S. dollars to promote inclusive growth and help improve the quality of life of India's rural poor through the provision of affordable financial services, an ADB report said on Monday.

The program will address the problems faced by farmers by undertaking a comprehensive reform of the cooperative credit structure, said the report.

"The weaknesses of the cooperative credit structure have immense adverse economic, social, and political impacts on the rural sector," said Kunio Senga, Director General of ADB's South Asia Department.

The agriculture sector, upon which two-thirds of India's people depend, is on a long-term declining growth trend, said the report.

The project will tackle a major factor behind the sector's declining growth: limited access to credit for the farmers. To be carried out in five states - Andhra Pradesh, Madhya Pradesh, Maharashtra, Rajasthan, and either Gujarat or Orissa - the program will revitalize the cooperative credit structure, part of the mostly state-run rural finance system, to more effectively reach out to the masses of small farmers.

Established by the Government in 1904, the credit structure has evolved into one of the largest rural finance systems in the world, underpinning the broader cooperative movement in India.

However, urgent reforms are needed to remove the deep-seated obstacles to improving efficiency and affordability. The credit structure suffers from poor governance, weak portfolio management, and recurring losses.

The Rural Cooperative Credit Restructuring and Development Program will significantly enhance the legal, regulatory, and governance framework to ensure members control over the cooperative credit structure and facilitate effective enforcement of prudential norms.

Source: Xinhua