RCF model of Indian Bank for micro credit
| Date | 11 January 2013 |
| Pages | 57-67 |
| Published date | 11 January 2013 |
| DOI | https://doi.org/10.1108/15587891311301025 |
| Author | Rajaram Dasgupta,Manickaraj Malai |
| Subject Matter | Strategy |
RCF model of Indian Bank for micro credit
Rajaram Dasgupta and Manickaraj Malai
Abstract
Purpose – Indian Bank, a major commercial bank in South India, has launched Rural Credit Franchisee
(RCF) model for lending money to small borrowers in villages. The study aims to study the business
model, the profile of ultimate borrowers and their credit requirements and to study the economics of the
model.
Design/methodology/approach – Data used for the study are mostly primary in nature collected from
the RCFs and the rural borrowers. In addition, bank officials were interviewed and also data on loan
accounts of RCFs were collected from the sample bank branches and the RCFs.
Findings – The RCF scheme is a novel micro finance scheme and it has showcased that the informal
institutions can be linked with the formal credit institutions. The scheme has benefited all the
stakeholders including the bank, the RCFs and the rural poor.
Research limitations/implications – The study has covered majority of the RCFs of the bank in terms
of number and volume of business under the scheme and hence the results indicate the performance of
the entire portfolio of the bank under the scheme.
Practical implications – The study finds that the scheme has benefited all the stakeholders. It has
particularly helped in creating competition amongst the rural moneylenders and thereby bringing down
the cost of credit in rural hinterlands. Findings are strongly in favour of expanding/replicating the model
by the other commercial banks and in all parts of the country,rather across the entire world.
Originality/value – The RCF model is one of its kind and the policy makers and regulators may
encourage the scheme in order to attain inclusive economic growth. This is a first of its kind study
investigating the operation of such a model.
Keywords Rural Credit Franchisee, India, Micro finance, Micro credit,Indian bank, Pawnbroker, Loans
Paper type Research paper
Introduction
Microfinance is a provision of financial services like savings, credit, insurance, remittance,
etc. in a very small quantity generally to the poor people (Dasgupta, 2001; Dasgupta and
Rao, 2003). Microfinance in that sense is not different from usual financial services. However,
what makes microfinance a completely different category of financial services are: small
size, and poorer segments.
Since provision of financial services is a commercial activity, the financial institution offering
the services needs to cover the cost of operation and earn a surplus (profit) for sustaining
future operations. It includes three types of costs: fund, transaction and risk.
So far as the first type of cost is concerned, there is generally no difference between usual
finance (UF) and microfinance (MF) unless some development fund is made available at
lower price. However, there may be a difference between a bank, which has access to low
cost deposits, and other financial institutions, which have to tap market at a competitive
price.
DOI 10.1108/15587891311301025 VOL. 7 NO. 1 2013, pp. 57-67, QEmerald Group Publishing Limited, ISSN 1558-7894
j
JOURNAL OF ASIA BUSINESS STUDIES
j
PAGE 57
Rajaram Dasgupta and
Manickaraj Malai are both
based at Development and
Rural Finance Area Group,
National Institute of Bank
Management, NIBM, Pune,
India.
The authors are thankful to the
top management of Indian
Bank for allowing them to study
the scheme and sharing
relevant information with them;
to the Lead District Manager
and Branch Managers, at
Kanchipuram, RCFs and
borrowers for sharing
information; and to Antoniette
D’Souza and Publications
Department of NIBM for
providing secretarial and
editorial assistance. The
authors are also thankful to the
audience at the Workshop at
IIM Kozhikode for their
comments that helped
improving the paper. But the
responsibility for any error
remains with the authors.
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