Rural Credit

Rural Credit in 20th Century India
An Overview of History and Perspectives
Mihir Shah, Rangu Rao and P.S. Vijay Shankar
This brief overview of rural credit in 20th century India finds a remarkable continuity in the problems faced by the poor throughout this period. These include dependence on usurious moneylenders and the operation of a deeply exploitative grid of interlocked, imperfect markets. We articulate the theoretical and historical case for nationalisation of banks and provide evidence of its positive impact on rural credit and development. Certain excesses led to reforms unleashed in the 1990s. This did increase bank profitability but at the cost of the poor and of backward regions. While the MFI model of microfinance is unsustainable, the
SHG-Bank Linkage approach can make a positive impact on security and empowerment of the disadvantaged. Much more than microfinance is needed to overcome the problems that have persisted over the last 100 years.

Introduction
This brief overview of rural credit in India begins in the 19th and ends in the 21st century but it is primarily concerned with the major episodes of the 20th century. The historical narrative pays close attention in each case to the perspectives that informed changes in policy and also documents the impact of these changes. We begin with a description of rural credit in the late-colonial period. The problems faced by India 's villages display a remarkable continuity from this situation throughout the period being studied.
Dependence on usurious moneylenders and the operation of a deeply exploitative grid of interlocked, imperfect markets afflicts the rural poor. After a review of the weak performance of cooperative credit institutions in India, we articulate the theoretical case for nationalisation of banks in 1969 and document its positive impact on rural credit and economic development. However, we also suggest that certain excesses in the two decades
following

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