The linkages between financial sector development and economic growth have been well recognized Government policies in India have given prime importance to credit availability to the poor as a means of generating sustainable income opportunities, often without examining the skill levels and financial capability of the recipients. This has led to high defaults of such loans and demands for a revamp of the legal enforcement mechanisms by the banking sector. The subprime crisis in the United States has clearly brought out the consequences of large unrecoverable loans to an economy. The study examines how the enforcement of loan contracts by legal institutions is associated with the access to small credit, across different districts in Orissa. Further, the possible reasons for the variations in the recovery of bank loans are examined in selected districts.
The association of access to credit with the pendency of cases in the civil courts is weak. Access to credit (only as measured by per capita advances) has a significant relationship with the pendency of cases in the certificate courts. The functioning of the debt tribunals and securitization law mechanisms framed for improved recovery are weakened due to the execution requirements through an administrative system which is unable to respond to the needs of this new framework. The loan recovery in rural areas is found to be higher than in the urban areas; and the recovery in the government sponsored schemes is significantly lower than in the other sectors. At the micro level, the support systems available to the individual entrepreneur are found to be of great assistance in ensuring a successful business.
In order to strengthen the financial system, there is an urgent need to improve financial literacy, widen the availability of basic financial services, including money transfer and savings, and to emphasize among all stakeholders the importance of credit and recovery for the financial and economic development of an area. Credit should not be the first choice for poverty reduction. The legal systems need strengthening of human resources, infrastructure and technology to be able to perform in a more responsive manner. Reform of the incentives for bank and government field staff, changes in the policy guidelines to ensure better selection of recipients and continued support for grounding of the loans is required.
At a broader level, the role of wage employment and self employment programs needs to be re-examined keeping in view the capabilities and the circumstances of the individual sought to be assisted.
|School:||The Johns Hopkins University|
|School Location:||United States -- Maryland|
|Source:||DAI-A 71/05, Dissertation Abstracts International|
|Subjects:||Law, Commerce-Business, Finance, Banking, South Asian Studies|
|Keywords:||Banking loans, Court effectiveness, Credit recovery, Development, India, Legal institutions, Orissa|
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