Financial Engineering --- Strategy To Raise Rural Lending To 25% In Three Years



Dear Friends,

1. It is a fact that farmers and SME are charged 36% to 120% interest by
moneylenders, commission agents and traders.



2. In addition to above World Bank report also points out that Banks provide
only 4% of the credit needs of over 20 million SMEs.



3. Farm lending recovery rate in Punjab is as high as 95% against 50%-55% for
industry.



4. It is a fact that farmers repay the loans in two years only.



5. Loans and advances to farmers and SMEs are prime functions of our banks and
essential for development and growth of rural economy. Loans to buy Cars,
Airconditioners, Credit Cards and such luxury items are secondary avoidable
functions of our banks.



6. In Punjab even deposits of farmers are not fully available for the use of
needy farmers.



In view of the above facts our banks must come forward with plans & strategy to
boost lending to farms and SME sector.



A. Presently traders/ arhtiyas illegally intercept farmer’s money and use it to
serve credit needs of farmers and SMEs who need it and charge extortional rate
of interest. – Mandi Board Acts be amended to provide for direct on the spot
payment of farm produce to farmers by cheque.



--- Due to the above procedure immediately bank deposits will go up
substantially. So please note that banks will be required to contribute only a
fraction of the credit needs of farmers from diversion from other sources.



B. Present inflation rate is 5%-6% so bank interest for saving deposits be
raised to 6% and fixed deposits to 10% this will bring in flood of money in to
bank accounts. Bank lending rural economy could be easily raised to 25% of all
bank lendings.



C. Above procedures will starve the parallel black economy. And the gains will
show up as deposits in the banks to further increase lendings to rural economy.



D. Income & Consumption by rural economy will go up substantially.



F. Tax revenue of the government too shall go up from rural economy.



G. These steps shall bring progress & prosperity to rural economy and scale
down poverty level.



Best wishes,

Ravinder Singh


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