The government’s decision to provide financial assistance to moneylenders shows that even a well-functioning centralised banking system has its limitations. Reaching out to far-flung areas was always going to be difficult in a country the size of India. It has been addressed in part by regional rural banks and cooperative banks, but the official structure is still lacking.
Some Banking is more expensive and more dangerous because of the lack of unique local expertise about remote places. When the banks are required to make politically right but financially disastrous decisions like maintaining down the loan rate to farmers even while the interest rates in the economy rise, these expenses grow even further.
With the rural moneylender, there’s a lot of baggage that comes with it. Just as the image of the traditional village schoolmaster is one of gentleness and kindness, the image of the typical village moneylender is one of usury and worse. Not everyone can be turned into an efficient member of the contemporary financial system from a pound of flesh moneylender.
Setting an interest rate cap alone isn’t going to cut it. It is imperative that moneylenders are properly monitored. Money lending activities can differ greatly from state to state, making this duty even more difficult to accomplish. There are firms good at money lending in ang mo kio.
Their lending to farmers in locations where the moneylender is also a farmer will be more difficult to supervise. Therefore, even as the official banking system uses moneylenders to enhance access to farmers, care must be taken to ensure that public monies are not used to resurrect some of the least desirable components of traditional rural society in India.
In the villages, the money-lender had a significant role to play in the financing of agriculture. While his patronage continues, there has been a huge coordinated and methodical attempt to diversify the sources of finance for farmers, dealers, industrialists and other economic activity participants since Independence. Local money lenders are today joined by cooperative credit societies, banks, joint-stock companies, and other financial institutions that have been founded or encouraged by the government.
They’re also trying to raise money through various means. By providing low-interest loans, fostering small savings, funding growth plans, and aiding companies, the government also plays a vital and perhaps even dominant role in the financial sector.
Rural agriculture was heavily reliant on moneylenders for funding. Even though he still has patronage, there has been a concerted effort to diversify the sources of credit available to agricultural producers, traders, manufacturers, and others. Not only are there local moneylenders now, but also government-sponsored cooperative credit societies, banks, and jointstocks.
Their goal is to save money. State aids industries and finances development programmes.