Aiyar on perils of inclusive loans

This site has previously examined the various edit pieces which appeared in the Indian newspapers on the global financial meltdown originating in the US. Swaminathan Anklesaria Aiyar in his column Swaminomics in the Times of India today writes about ‘the perils of inclusive loans’. This is one angle which is possibly closest to the Indian scenario provides an opportunity to reflect on the poor rather than the media obsession with elite business school students and their i-banking jobs.

In the last budget, the government announced the biggest ever financial inclusion programme undertaken in the history of the country – the Rs 71,650 crore farm loan waiver. Aiyar warns that inclusive finance — which includes giving loans to the poorest of poor — if stretched beyond a point especially as political agenda could prove to be too risky. Aiyar cites the example of quasi governmental mortgage giants Freddie and Fannie. Aiyar points at the risks of giving out large scale loans that cannot be repayed. So how does this connect to India?

The recent farm loan waiver, which the Indian finance minister insists would benefit 36 million small and marginal farmers and around 6 million other farmers, bear the burden of spoiling the credit culture of the country and make the rich farmers richer. The first such financial inclusion programme in the 1980s, part of the Integrated Rural Development Programme (IRDP) under India’s sixth five year plan, does not set an encouraging precedence. Also, the diversion of such huge quantum of funds also deprive other communities their share of development funds. For example the jaggery farmers of Andhra and Karnataka who climb three to five 50 feet tall trees a day or coalwallahs of Lalmatiya Bihar who carry 250 kg of coal at a time, twice a week.

Aiyar Swaminathan A, (2008), ‘The perils of inclusive loans’, Times of India, Kolkata, Sep 28, Pg 16

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