Thursday, October 19, 2006

Access Denied!!!

A few years back, an American Prof had visited the institute where I teach, and had given an interesting talk about the unmentioned issues in globalisation of business. Giving an example of "non-tarrif barriers", he narrated an interesting incident of a US company which had applied to set up business in South Korea.... It received a 60-page questionnaire from the South Korean government, with detailed questions in Korean language, to be answered - in Korean language - and returned in 7 days.

It was an amusing anecdote...

...and, then one realises that such "denial of access" is pervasive across all boundaries - not just between countries, but also within segments of a society.

Here is an example:

State Bank of India offers "Crop Loan" (i.e., the much needed "Financial assistance to meet cultivation expenses for various crops"). The loan amount is upto Rs.100,000/- - and more, upto Rs.2,500,000/- for certain crops (tobacco, sugarcane, etc.). The interest rates and payment conditions are extremely reasonable (interest rates range from 8.5% to 12.75% depending on the amount and whether the farmer repays back within 3 years or more).

Considering that 60% of Indian farmers are marginal (less than 2 Hectares) or Small (2-4 Hectare), this is an extremely supportive loan policy.

The SBI website lists the documents requried to avail this loan:

  • 1. Land records to ascertain cultivation rights.
  • 2. Acreage under different crops
  • 3. Sources of other borrowings eg. Co-operative Societies and Banks.

    This may look simple and innocuous, but, in practice, this is what the farmer will have to submit:

    1. Land records to ascertain cultivation rights.
    certificates for
    - land record (i.e., ownership of the land)
    - record of all revenue paid
    - no dues from the government
    - land valuation certificate (specially if the loan is for more than 50k, since in that case the land is mortgaged to SBI)

    2. Acreage under different crops
    I am not sure how this would be certified, but surely, it will not be based on farmer's own statement. Some government official or maybe the bank officer him/herself will need to testify this.

    3. Sources of other borrowings eg. Credit Co-operative Societies and Banks.
    If the farmer has borrowed and paid to others, well and good, but suppose he has never borrowed from them. How can he prove that?... well, he will have to get No-objection/ No-dues certificates from all the banks and credit co-ops in the area.

    Till we have farmers carrying briefcase/plastic-folios, it is difficult to imagine such loans reaching where they are needed.

    Perhaps this also explains:

  • why we have a little suicide in our food, and
  • why farmland in India is becoming the "Sur-Real" Estate Market


    Vasant said...

    I guess the issue also has to do with where one balances convenience against the risk of someone with mal-intent misusing the system.

    The SBI example is a perfect case - the bank needs to safeguard against default risk; the rate range at which the loans are being provided positions them with collateralized loans, but without the need for any actual collateral. What the bank is asking for are merely safeguards against misuse. Agreed that it need not go to the extent of the point 3 proof, but how else would one measure the credit risk ? - unless of course, its a microcredit finance.

    gaddeswarup said...

    This article
    touches on some of the topics you have been discussing. Jeffrey Witsoe has earlier written about Bihar caste politics for CASI. I do not much about him or CASI but both his articles look interesting.

    Better Tomorrow For India said...

    Denial of access is to be seen almost everywhere. The procedural compulsions are such that in almost all cases a layman finds himself lost. Perhaps this is one of the major reasons behind corruption and proliferation of agents (legal as well as illegal) in so many Govt Offices like Regional Transport Offices, Passport Offices etc.
    The only way out may be to simplify the procedural requirements and / or improve the intellectual capababilities of citizens so that there is some consonance between the two. Till then such problems will remain entrenched and even Acts like RTI will remain largely unutilized.