Why is it necessary that banks and cooperatives increase their lending particularly in rural areas?

Cheap loans and credit schemes are the primary sources to improve the credit situation in India. Banks should open more and more branches in rural areas as well as make rural people aware of banking, credit facilities, and cooperatives. Banks should provide loans at lower interest rates so that rural people don’t depend on informal sectors. This will protect them from scams and fraud and prevent them from getting exploited by informal sources. Cheaper loans can help rural people in many ways such as growing their businesses, trading in a variety of goods, and improving their living standards. Banks and Cooperatives can also help farmers to expand and diversify their production. Overall cheaper loans are one of the main factors in rural growth and development.​

Importance to Increase Lending Activities in Rural Areas

1. The main reason for increasing lending activities in rural areas is to help rural people by providing loans at reasonable rates rather than from informal sources.
2. In rural areas, agriculture is the main source of income. To increase the production of crops, farmers need better tools and resources(seeds, fertilizers, pesticides, water supply, equipment etc) and for this purpose they require money and this requirement will be fulfilled by the credit.
3. People in rural areas need loans for small-scale startups and shops.
4. The wedding of a daughter is considered to be one of the holiest responsibilities of the parents. They spend extravagantly on their daughter’s marriage. So they need loans for this purpose.
5. By providing loans, banks help rural people to start small-scale businesses which helps create new job opportunities which is necessary for the development of an economy.
6. Rural people have access to money, they will spend it on improving their lifestyle.
7. The rate of poverty is high in rural areas, thus credit helps rural people their upliftment by providing money for income-generating activities.
8. Banks provide exposure to other banking activities such as insurance, saving accounts, fixed deposits, and investments in equity and bonds.
9. Technological Advancement is necessary in the modern world. So credit helps rural people to acquire new technology which helps them to connect with new opportunities.
10. Higher education is still costly in this country and many rural people can’t afford that and for this purpose, they require credit facilities.
11. Diseases don’t discriminate between poor and rich people. There are certain diseases which require a lot of money for their treatment. Here banks help them by providing credits for healthy living.

Functions of Banks and Cooperative​s

1. Accepting Deposits: Accepting deposits is one of the fundamental features of a bank. Banks take money from people who have access to it and keep it safe.
2. Loans & Advances: Loans are the main source of income for banks. Banks charge a higher rate of interest on loans and pay lower interest on deposits.
3. Funds transferring help: Banks perform the function of fund Transferring from one branch to another.
4. Portfolio Management: Banks help to manage the portfolio of the people by performing the activity of purchasing and selling securities.
5. Utility Functions:

• Accepting cheques.
• Banks Issue letters of credit.
• Banks keep the valuables safe and secure by providing locker facilities.
• Foreign Exchange dealing can also be done through banks.
• Act as guarantor.
• Other welfare programs.

Conclusion

The literacy rate is lower in rural areas than in urban areas. Due to this, many informal lending parties take advantage of these people by providing credit at higher interest rates. Because of these higher interest rates, many people avoid to participate in lending activities. That’s why banks need to increase their lending activities in rural areas so that these people can have access to credit at reasonable interest rates.