Business Case Studies & Business Publications

Rural Credit Cooperatives in India

Li, Wei, Parmar, B...

Case

Rural Credit Cooperatives in India

Li, Wei; Parmar, Bidhan L.

BP-0521 | | 16 pages Case

Collection: Darden School of Business

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Learning Objectives

Recently, the Indian Congress asked a distinguished committee of experts to analyze and make policy recommendations about India's Cooperative Financial Institutions (CFIs), which included organizations such as credit unions and cooperative banks. One committee member, Mohan R. Narayan, a leading economist at a prestigious Indian university, was enthusiastic about the job; it was an opportunity to help millions of rural poor and to have a positive effect on the country. Some poor farmers, deeply in debts to money-lenders, had been reported to resort to committing suicide when they faced with draught or other catastrophes and saw little reason to continue living. Well-functioning CFIs would certainly help restore hope and boost income for the rural poor. But he knew the system had a long history of overregulation, financial laxity, and corruption. Creating an actionable and clear strategy would be no easy task. The case, written at the invitation of the World Bank to study the challenges of building inclusive financial system in emerging countries, invites students to discuss 1) The roles and responsibilities of financial institutions in poverty-reduction and economic development, 2) the benefits and risks of using public versus private institutions to aid development, and more specifically, 3) the economics of credit cooperatives?in particular how they function in an emerging market setting.

In an MBA course focusing on emerging markets, finance, or economic development, the case can be used to introduce students to three interrelated sets of issues: ? The roles and responsibilities of financial institutions in poverty-reduction and economic development?specifically the effects of commercial banks and credit cooperatives on the ability of the poor to afford investments in small businesses, infrastructure, and to bridge consumption by mitigating the risks of a volatile income cycle ? The benefits and risks of using public versus private institutions to aid development?specifically the relative strengths and weakness of commercial and government-run institutions to administer development initiatives ? The economics of credit cooperatives?specifically how they function in an emerging market setting This case underscores the importance and challenges of reducing poverty, particularly by describing a range of approaches used in the Indian cooperative system and allowing students to debate the merits of those approaches, as well as to brainstorm their own solutions.