Rural Credit Cooperatives in India

16 Pages Posted: 9 Jun 2009

See all articles by Wei Li

Wei Li

University of Virginia - Darden School of Business; Centre for Economic Policy Research (CEPR)

Bidhan L. Parmar

University of Virginia - Darden School of Business

Abstract

Recently, the Indian Congress asked a distinguished committee of experts to analyze and make policy recommendations about India's Cooperative Financial Institutions (CFIs), which included organizations such as credit unions and cooperative banks. One committee member, Mohan R. Narayan, a leading economist at a prestigious Indian university, was enthusiastic about the job; it was an opportunity to help millions of rural poor and to have a positive effect on the country. Some poor farmers, deeply in debts to money-lenders, had been reported to resort to committing suicide when they faced with draught or other catastrophes and saw little reason to continue living. Well-functioning CFIs would certainly help restore hope and boost income for the rural poor. But he knew the system had a long history of overregulation, financial laxity, and corruption. Creating an actionable and clear strategy would be no easy task. The case, written at the invitation of the World Bank to study the challenges of building inclusive financial system in emerging countries, invites students to discuss 1) The roles and responsibilities of financial institutions in poverty-reduction and economic development, 2) the benefits and risks of using public versus private institutions to aid development, and more specifically, 3) the economics of credit cooperatives—in particular how they function in an emerging market setting.

Excerpt

UVA-BP-0521

Rural Credit Cooperatives in India

One Sunday morning in July 2006, Mohan R. Narayan was keeping his eye on the weather. Lately the seasons were unpredictable. During the usual monsoon season the clouds had refused to rain, and now during peak harvesting time, temperatures were flaring. Like a child throwing a temper tantrum, sometimes the weather just refused to do what it was supposed to. Narayan knew that erratic weather was an ominous sign.

Narayan was a leading economist at a prestigious Indian university outside New Delhi. Recognized for his work on banking-sector development, he had developed a reputation for being strong-willed through his staunch advocacy of financial discipline and free market competition. Recently, the Indian Congress had asked him to be a member of a distinguished committee whose goal was to analyze and make policy recommendations about India's Cooperative Financial Institutions (CFIs), which included organizations such as credit unions and cooperative banks. On one hand, Narayan was enthusiastic about the job; it was an opportunity to help millions of rural poor and to have a positive effect on the country. On the other hand, he knew the system had a long history of overregulation, financial laxity, and corruption. Creating an actionable and clear strategy would be no easy task.

. . .

Keywords: India, credit cooperatives, financial institutions, rural, emerging markets, access to finance, micro credit, economic development

Suggested Citation

Li, Wei and Parmar, Bidhan L., Rural Credit Cooperatives in India. Darden Case No. UVA-BP-0521. Available at SSRN: https://ssrn.com/abstract=1416552

Wei Li (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
804-243-7691 (Phone)
804-243-7681 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/li.htm

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Bidhan L. Parmar

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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