Providing rural credit in southern India: a comparison of commercial banks and cooperatives.

This paper contrasts the recent experiences of two different institutions in providing credit and savings facilities in the countryside of Tamil Nadu, southern India. Ever since the late-1960s, there has been a rising demand for credit to finance investment in agriculture. This has been reinforced by Government policy over the last two decades, and especially since 1980, to provide credit both to priority activities, including agriculture, and to disadvantaged rural groups. Part of that policy has been to encourage the commercial banks to offer services in the countryside, alongside the previously well-developed network of cooperatives offering formal rural credit. The commercial banks have had considerable success in expanding their network of branches, and in increasing bank deposits and loans in rural areas. Operating as corporate bureaucracies, the banks have been able to expand without being crippled in the process. On the other hand, their institutional strength has meant that Government credit policy has been implemented cautiously. The agricultural credit cooperatives, no newcomers to the countryside, have still to fulfill their long-declared function of providing short-term credit for crop production to the majority of agricultural households. Loan recovery by the cooperatives has been weak. The cooperatives have suffered partly from the internal contradictions inherent in any cooperative structure imposed upon the peasantry, from major flaws in the organizational structure of Tamil Nadu cooperatives, as well as from the increasing appropriation of the cooperatives for party political ends. The contrasting experiences of the two different institutions in providing rural credit illustrate how policy applied through different institutions can produce quite different outcomes. They also demonstrate how changes in the socio-political environment, neither immediately obvious nor predictable, can critically affect policy results. [ABSTRACT FROM AUTHOR]