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Evaluation Of Strategic Schemes Of Financial Institutions Economics Essay

Objective- The aim of this paper is to discuss the strategy of different financial institutions for rural development. Our focus would be on whether borrowing schemes have helped the unbanked area to transform production and employment activities and reduce poverty and inequality. Lack of access of finance is often cited as the key reason for the poverty of the rural people, i.e. why do the poor continue to be poor. The paper would be able to shed light on the strategies; whether state led credit expansion undermines or enhances income earning capacities of rural people. To examine the implication of financial institutions for employment diversification out of agriculture, the paper particularly focuses on borrowings schemes of Bank of Baroda (BOB), Lead Bank in Ajmer Region for the upliftment of the rural people of the society.

Design:- A questionnaire was designed for the purpose of data collection from 250 respondent in Ajmer region. (which will include Ajmer, Bundi, Bhilwara district rural branches only). The paper was covered all 50 branches in Ajmer Region. Convenient sampling technique was used for data collection.

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Findings:- Strategic schemes of BOB is positively related to income earning. If rural people have taken loan from bank under various schemes has it really enhance their income. In this paper only the component of loan has been considered and all the other factors are assumed as "constant." The paper analyze how various govt. & non govt. schemes of BOB are benefited for rural people. In this regard financial institutions require to adopt strong strategies for tackling issues such as sustainability and recovery performance.

Limitation:- Only loan component was considered to find out the effect on livelihood income. The livelihood income effect the rural development by reducing poverty & inequality. A large number of components can be taken to measure the rural development.

Practical Implication: - Strategic schemes of financial institutions are key to rural development but for more effectiveness financial institutions should minimize their paper formalities so that majority of rural people can be benefited.

Originality / Value:- In this paper we investigate the effectiveness of different borrowing schemes on livelihood income. The paper presents the comparative status of beneficiaries of BOB's financial schemes before & after implementation. In other words, the paper attempts to analyze the strategic importance of different schemes of BOB . BOB has established employment schemes, credit programmes, education plans etc. all intended to bring about progressive growth and sustainability in the rural population of India

Keywords: Borrowing Schemes, strategy of financial institutions, income earning capacities.

Paper Type : Research Paper


Strategic management is part of every business and constitutes an important direction and guideline to successful business operation. Managers perceive, understand and implement strategic management in different ways. Financial institutions are special as they not only accept and deploy large amounts of uncollateralized public funds in a fiduciary capacity, but also leverage such funds through credit creation. In India, prior to nationalization, financial services was restricted mainly to the urban areas and neglected in the rural and semi-urban areas. Large industries and big business houses enjoyed a large portion of the credit facilities. Agriculture, small-scale industries and exports did not receive the deserved attention.

Rural households need credit for a variety of reasons. They need it to meet short-term requirements for working capital and for long-term investment in agriculture and other income-bearing activities. Agricultural and non-agricultural activities in rural areas are typically seasonal, and households need credit to smooth out seasonal fluctuations in earnings and expenditure.

The burden of indebtedness in rural India is great, and falls mainly on the household of working people. The exploitation of this group in the credit market is one of the most pervasive and persistent features of rural life in India. Despite major structural changes in credit institutions and forms of rural credit in the post-Independence period, Darling's statement (1925), that "the Indian peasant is born in debt, lives in debt and dies in debt," still remains true for the great majority of working household in the countryside. If these credit needs of the poor are to be met, rural household need access to credit institutions that provide them a range of financial services, provide credit at reasonable rate of interest and provide loans that are unencumbered with extra-economic provisions and obligations.

In the field of rural development, the financial institutions had taken some steps to uplift rural people. These were as follows:-

First, the RBI lowered the cost at which the rural poor had access to credit. Commercial bank interest rates were kept below the average interest rates in rural areas

Second, the RBI identified sectors which it felt did not have access to organized lending market or could not afford to pay the interest at the market rate. It then skewed financial services towards these 'priority' sectors, which included agriculture, small businesses and entrepreneurs.

Finally, the centerpiece of financial institutions was the use of state control of bank placement to reach population sector that had previously no access to formal financial institutions.

Reserve bank of India declared Lead Bank scheme in 1969 to reduce the credit gaps and provide adequate banking facilities through area approach. RBI declared Bank of Baroda as a lead bank among all government Banks in Ajmer Region . The various rural branches were opened by BOB in Ajmer region after 1969.


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Table 1 & Figure 1 Insert Here


The Figure 1 and Table 1 clearly show that after 1969 branch expansion programme ran successfully in Ajmer Region. The table shows year-wise branch opening status in Ajmer region which covers Bhilwara, Bundi & Ajmer districts. Maximum branch opened between 1980-1984 in Bundi & Bhilwara Districts. After 1989 there is no branch opening in Ajmer region rural areas.

The Reserve Bank of India in 1970 issued specific directives with respect to financial institutions. Specifically, a target of 40 per cent of advances for the "priority sectors," namely agriculture and allied activities, and small-scale and cottage industries, was set for commercial banks.


Table 2 Insert Here


Bank of Baroda is financing 80% of the total finance to Priority Sector. The above table shows the comparative analysis of five Government banks in Ajmer region and it clearly indicates that Bank of Baroda leads all the other five banks in priority sector lending.

The paper focuses on, whether the borrowings schemes of BOB enhances income earning capacities of rural people or not. When one thinks of Rural Development in broader sense it becomes obvious that upliftment of rural people is necessary because rural development promotes the economic development. Borrowings are the medium through which an imbalance of the present and the future can be solved. When conditions are favorable and future is secured then loan is used by people in productive activities but during seasonal fluctuations it becomes difficult to meet the basic necessities of life then loan is used for meeting the day to day necessities of life like income earning, housing facility, education for children, ownership of assets etc. The paper will present the comparative status of beneficiaries of BOB financial schemes before and after implementation.

Review of Literature

Many studies have been done to undertake the impact of strategic schemes of financial institution on rural development. The past studies support that various schemes are specially for the development needs of the poor in sharp contrast with conventional commercial banking, which has marginalized the poor. The banking facility has a high priority in the national agenda and the role of banks is crucial in the processes of economic development. The key objective of rural banking institutions is to remove poverty through development planning, leading to increase in agricultural production and generation of employment opportunities. The main focus is economic upliftment of weaker sections through micro finance and micro enterprises.

D.N. Gupta examines the various aspects of the poverty issues in his book "Rural Development System"(2001) and highlights factors that are critical for alleviation of poverty. These factors clearly bring out to the fore the rising population, illiteracy, poverty , poor basic amenities, lack of income source, unemployment and shrinking natural resources which are having far reaching consequences on the rural economy in general and the income of the individuals in particular. Reeta Mathur discuss in her book "Economic reforms and Poverty Alleviation" (2002) that the concept of rural development has emerged with new force and is almost at the top of agenda in national policies. The developed countries have also recognized this need and have directed their efforts towards meeting the basic needs of the poorest in developing countries. The World Bank has specifically pledged its support in improving productivity and welfare of rural people. The concept of rural development encompasses a wide spectrum. Diversity of views exists regarding the term rural development. Rural development is one of the most vital issues of the day. Various schemes to promote rural development have been launched but the concept of rural development is still vague.

M. John says in his presentation on "Providing Credit to the Poor : Social Banking and Micro Credit" (1972) that rural banking is credit targeted to the poor , delivered in locations close to where the poor live , often at subsidized interest rate. Similarly, Wiggins and Rajendran in their research on "Social and Development banking (1987)".The declared objectives of this new banking policy were to provide banking services in previously unbanked or under-banked rural areas; to provide substantial credit to specific activities including agriculture and cottage industries; and to provide credit to certain disadvantaged groups such as, for example, Dalit household. Basley says in his book "Problems with Government's Intervention" (1995) that providing credit to the rural people so that they may improve their status by reducing poverty. It may also help them in diversification of their production.

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ICFAI Books discuss 'The concept of social banking' (1970). It is the social banking process that is specially for the development needs of the poor in sharp contrast with conventional commercial banking, which has marginalized the poor. Social banking has a high priority in the national agenda and the role of banks is crucial in the processes of economic development. The key objective of social banking is to remove poverty through development planning, leading to increase in agricultural production and generation of employment opportunities.

Ramasastri A.S. and Achamma Samuel in their article on "Banking Sector Development in India 1980 - 2005 : what Annual Accounts speak ? Studied the trends in banking during 1980-2005, covering both pre- and post- reforms period. In India, prior to nationalization, banking was restricted mainly to the urban areas and neglected in the rural and semi-urban areas. Large industries and big business houses received a large portion of the credit facilities. Agriculture, small-scale industries and exports did not get the deserved attention. The banking system in India has played a pivotal role in the Indian economy, acting as an instrument of social and economic change.

Alok Kumar Sharma says in his article "Assessment of Rural Poverty in India" (1995) that in India, poverty is defined on the basis of a minimum per capita daily nutritional requirement based on the recommendations in 1979 by Government of India. Poverty line was defined as per capita monthly expenditure of Rs.49.09 in rural areas. With massive growth in government expenditure the quantum of flow of public resources to rural areas was definitely more significant. The period saw an increased expansion of rural development programmes aimed at strengthening the redistributive growth concept. In addition the development of better infrastructure and mobility in the rural areas contributed to a growing flow of funds to the rural sector. Governments intervention has continued in all rural development and welfare programmes. The revised development strategy lays greater emphasis on providing employment opportunities to the rural people. Several government programmes are aimed at strengthening the rural markets to make agricultural produce more economic for the benefit of the farmers. Derek Franck in his case study of "The Case for Community Banking (2000)" says that banking provides facilities to communities for many reasons that are as much social as commercial and often yields surprising gains. Such initiatives not only create economically resilient communities but they also make fertile recruiting terrain for the banks.


The effective management of any development programme requires periodical monitoring and evaluation Not only to access the performance of the financial activities and its implementation, but also to provide necessary feedback for making improvement in financial policy / service and its management.

As such extensive field surveys, in depth interviews and interactions with sample constituted the core of the paper methodology. The data for the paper was collected from primary sources.

Geographically and according to Bank of Baroda Lead Bank Scheme the Ajmer region has been divided into five district:-

Ajmer District

Bhilwara District

Kota District

Bundi District

Jhalawar District

Of the five districts in the Ajmer region BOB has 50 rural branches in Ajmer, Bundi and Bhilwara districts only. The rest two, Jhalawar and Kota district do not have any rural branch. They only have urban and semi-urban branches. The paper has covered all the 50 rural branches of Ajmer region. The sample size for present paper is 250 respondents. From each rural branch 5 respondents were selected - who fulfilled our requirements and availed any one of the financial services of BOB.

The hypothesis is :-

Ho :- There is no difference in income earning capacity of rural people before and after Loans.

Ha:- There is a difference in income earning capacity of rural people before and after Loans

The information that has been collected for the paper is mainly quantitative in nature and for this a questionnaire was prepared. The variable on which the information was collected through the interaction is briefly indicated below:-

Income earning aspects include:- (a) sources of income , (b) per month income (c) financial services from Bank for increasing income (d) paying rate of Interest (e) security deposit for borrowings (f) income after receiving financial facility.

The indicators mentioned above are studied in detail with the help of collected data to evaluate the effectiveness of various schemes of BOB.


Sources of livelihood play an important role in human life. It is difficult to sustain life without proper & regular source of income. It is impossible to meet any need without money and hence in villages people earn their livelihood through various sources. In this quotient we have defined what is source of livelihood and the amount of income that has been generated. If rural people have taken loan from bank under various schemes has it benefited them , has it really enhanced their income or not ?

It is important to note here that only the component of loan has been considered and the effect of all the other factors like cost of input, market condition , weather conditions etc were ignored / neglected because in this paper it has been assumed that if a person has taken loan and uses it in any occupation / profession it is expected to have a positive effect on the generation of his income.


Table 3 & Figure 2 Insert Here


The Table 3 & Figure 2 shows different sources of livelihood of all the respondents. It clearly reveals that 32% respondents depend on agriculture for source of income. Whereas 11%, 11%, 25%, 21% people are engaged in labour, services, business and other occupation respectively. Category (others) includes different type of small businesses which are run by rural people usually at their homes.


Table 4 & Figure 3 Insert Here


The Table 4 & Figure 3 reveals that among all the respondents only 209 people or 83.6% respondents benefited from bank and increased their income. The bank provides money in various schemes which helps rural people to increase their income.


Table 5 & Figure 4 Insert Here


Normally, The rural people have to pay security deposit to moneylenders, similarly bank respondents also has to pay security deposit to bank against the borrowed money. The Table 5 & Figure 4 shows that among the respondents only 119 or 57 % respondents are paying security deposit to bank against the borrowing facility. There are many schemes of bank for rural upliftment and in all such schemes bank are providing finance at subsidiary rate.


Table 6 & Figure 5 Insert Here


The Table 6 & Figure 5 shows that among 119 respondent, those are paying security deposit to bank., majority 94.2% respondents are paying security deposit in the form of assets.


Table 7 Insert Here


The table 7 clearly shows that among all the 250 respondents only 209 respondents have borrowing facility from bank. All 209 respondents increase their income after using the banking facility while ignoring the effect of other factors. It shows that banking facilities help in increasing income earning capacity of rural people.

If the people have money, there is a visible effect on their income, housing, education level, ownership of assets etc. and it also shows that there is awareness of banking facility. When poverty & inequality, and monopoly power of moneylender are reduced then rural development can be promoted.


Table 8 & Figure 6 Insert Here


Banking is a method of providing financial assistance to rural people through various schemes. eg. Agricultural, crop loan, KCC, Tractor loan, Dairy Loan etc. and helping them to increase their income and improve their standard of living. Their development is essentially through economic growth. The Table 8 & Figure 6 shows the different loan schemes for income generation in rural areas. It clearly shows that out of 209 respondents, who borrowed money from banks for income generation: 77 took loans through government schemes (PMRY , SCDC, SJSRY, KVIC) and other than government schemes BKCC scheme is very popular for agricultural loans.

Paired T-test

Income is a very important factor for an individual. In Ajmer region BOB plays a very important role in increasing income of rural people. Through banking loans rural people can increase their income easily. On the basis of below table; respondents of very low income group are known as BPL , low income group are known as poor people, average income group is middle class respondent and high & very high category are high class respondents


Table 9 Insert Here


In the table 9 clearly shows the per capita income of 209 respondents before and after borrowings from BOB.

The paper has used Paired sample t-test to analyze the effect of loan on income earning capacities. Paired sample t-test analyzes the before and after situations. Here as per the sample data, t-test is chosen to compare per capita income of beneficiaries respondents before and after loan conditions.

Ho :- There is no difference in income earning capacity of rural people before and after Loans.

Ha:- There is a difference in income earning capacity of rural people before and after Loans


Table 10 Insert Here


The Table 10 shows the P value (.000), which is less than .05. So we reject the Ho and accept the Ha. This shows that there is a significant difference in the income earning capacity of rural people before and after Loan. It shows that before taking loan respondent had lower per capita income but after taking loans from bank there has been increase in the per capita income while other factors have remained constant.


After analyzing the strategic schemes of BOB it is found that financial institutions plays an important role in increasing earning capacities of rural people. The paper confirms that financial institutions are the axiom for building up human capabilities. The findings of the paper will help policy planner to orient people towards long term benefits of strategic schemes of financial institutions to individuals and to nations so that they are able to improve life of many people. On the basis of findings there are some suggestions which may be explore in future.

Borrowings are accepted as an important factor in influcing people's upliftment. It is recommended that the financial institutions should make special provision for the inclusion of people to borrow money from banks. Upliftment activities or development activities should be concentrated more on people in BPL category.

This paper discussed the involvement of people from grass-roots levels in the monitoring and evaluation of the welfare programme, so that the effectiveness of the programme can be increased. The strategy should be directed toward the enhancement of the capacities for the improvement of economic status of rural people so that subsequently they can increase their income.

This paper is based on the sample profile of 50 villages, which reveals that economic status of the people can be improved. The financial institutions should explore various alternatives and useful remedies for poverty eradication and economic empowerment that can further help in reducing poverty & inequality.

The paper discussed that how banking is useful for rural people but if banks simplify the processes of borrowings, minimize other formalities, then more and more rural people will be benefited. This will in turn increase the percentage of borrowings from banks vis-à-vis moneylender.

Awareness regarding the different financial facilities and benefits must be increased in rural areas so that people can get information about various government policies meant for the upliftment of weaker section.

Government Banks have achieved remarkable progress in rural areas but a lot of initiative and thrust is still needed to see that the fruits of development reach the common rural folk.

On the basis of major findings these are some of the areas which may be explored for further research paper :-

Impact of strategic schemes of financial institutions on rural development is analyzed in a deeper way in the paper. However the entire relationship remains to be analyzed from the angle of other facilities with variables like savings, deposits, special schemes for women empowerment, ATM facility, etc. Further research would be helpful in gaining useful insight in this area.

Due to the financial and time constraints, analysis result is based on sample survey of 250 respondents from three districts of Ajmer Region which is Bhilwara, Ajmer, Bundi only. Similar studies may also be conducted for other districts, or regions.

The paper confirms that strategic schemes of financial institution is the axiom for building up human capabilities, a focal interest of rural development, given its primary role in enabling people to fully participate in socio- economic and political development.

The findings of the paper will help policy planners to orient people towards long term benefits of financial support to individuals and to nation so that they are able to improve the life of many people.

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