Formal credit reaches to only 24% in rural Andhra: WB

A rural finance access survey, conducted by the World Bank in the year 2003 in Andhra Pradesh and Uttar Pradesh, has pointed out high transaction costs and collateral requirements as reasons for low penetration of formal banking among the rural poor.

According to the survey, of the total rural households just 24 per cent in Andhra and 19.4 per cent in Uttar Pradesh have access to formal credit. The marginal income families account for less than 15 per cent.

Disclosing the key findings of the survey in a meeting held here on 'Scaling up access to finance for India's rural poor', Priya Basu, lead economist of the World Bank, said that SHG-Bank linkage has proved to be helpful in overcoming these obstacles to reach out to the poor, where women are playing a significant role.

The survey findings, which draw similarities between the two states, said that 87 per cent of the poorest households have no access to credit. Banks take 33 months in Uttar Pradesh and 26 months in Andhra Pradesh, on an average, to process the loan application.

Payment of bribes is an added problem. In 27 per cent cases, bribes were paid and the bribe amount was anywhere between 8 per cent and 42 per cent of a loan amount.

Dependence on informal credit is very high particularly among the poor, and 56 per cent of the informal credit is provided by money lenders, who normally charge exorbitant rates of interest.

Informal credit is mainly spent for emergencies (29 per cent) and social expenditures (19 per cent), which makes repayment a difficult task for the poor.

The World Bank economist suggested microfinancing as a viable model to empower rural poor.

Vijay Kumar, chief executive officer of the World Bank-funded rural poverty initiative programme, said that the government is aiming to provide financial assistance to at least 20 per cent of the ultra poor in rural Andhra Pradesh.