The Access of Dalit Borrowers in India's Rural Areas to Bank Credit

This article examines the access that Dalit borrowers have to bank credit in rural India in the period of financial liberalisation. Following bank nationalisation, an important component of bank policy was the direction of credit to deprived sections of the population. However, with the introduction of policies of financial liberalisation in the 1990s, the banking system was deregulated in order to improve its profitability. Although directed lending targets per se were kept unchanged, the definition of Òpriority sectorsÓ to which credit was to be directed was changed, thus weakening, in certain ways, the link between priority sectors and socially and economically deprived sections of the population. After 2005, the declared objective of banking policy has been to extend banking services to deprived sections through Òfinancial inclusion,Ó but without compromising on profitability or the objectives of financial liberalisation. The analysis here shows that Dalits, particularly Dalits from rural areas, have been marginalised by the banking system in the period of financial liberalisation despite the emphasis on financial inclusion. From the supply side, this article shows the persistent failure of the banking system in the 1990s and 2000s to meet the targets set for deprived sections. It also shows a continued fall in the proportion of bank credit given to Dalits through Small Borrowal Accounts Ð accounts that broadly reflect the credit given to poor households, which have relatively small credit requirements. From the demand side, using data from the All-India Debt and Investment Survey, the article shows a fall in the proportion of formal credit, particularly bank credit, in the debt portfolios of rural Dalits in the 1990s. Disquietingly, the void created by banks was filled by informal sources, particularly moneylenders, who extend credit to the poor at very high rates of interest.