Money lenders have caught up with the friends and relatives segment at 35 per cent when it comes to fulfilling the loan requirements of rural India. According to the recently Invest India Savings and Income survey for June 2007, banks with 19 per cent of sourcing, stand at a distant third.

Self help groups and cooperative societies are the fourth and fifth preferred choices for sourcing loans and have a share of 9 per cent and 6 per cent respectively. Says ICRIER director and chief executive officer (CEO) Rajiv Kumar: “It is to ensure ease of transactions that the common man avoids banks. The processes of banks for loans are hide-bound, full of bureaucracy, and require a lot of collateral... these cumbersome processes take the common man away from banks.”

The banking system in our country has not been able to cater to the needs of rural India because of its lack of penetration. According to ICICI Bank head of retail assets Rajeev Sabharwal: “It’s more like being in a development stage as till now the penetration of financing has been more focussed on the urban side. What banks need to do and which they are doing is to spread the distribution network in the rural market and look for low cost solutions by way of technology that will help reduce transactions and cash management costs.”

The Invest India study also provides insights on the requirements of rural India that force them to go for these loans. Financial emergencies come out as the prime reason for taking a loan — accounting for 35 per cent.

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