UNIT-3

Panchayati Raj /Rural Administration

The term Panchayati Raj in India signifies the system of rural local
self-government along with development. It has been established in all the states
of India by the Acts of the state legislatures to build democracy at the grass-root
level and was constitutionalized through the 73rd Constitutional Amendment
Act of 1992. Rajasthan was the first state to establish Panchayati Raj in 1959
and was followed by Andhra Pradesh, which also adopted the system in 1959
itself.
Panchayati Raj Institutions - Evolution

● The Panchayati Raj institutions have existed in India since ancient times.
● In ancient India, panchayats were usually elected councils with the
executive as well as the judicial powers.
● Later, foreign administrations such as Mughal and British, and the natural
and forced socio-economic changes undermined the importance of the
village panchayats.
● After the attainment of Independence, the evolution of the Panchayati Raj
System got a fillip.
● The Gandhian Principles were inculcated in the Constitution of India in
Article 40 which stated that the State shall take steps to organize village
panchayats and endow them with such powers and authority as may be
necessary to enable them to function as units of self-government.

Panchayati Raj- Balwant Rai Mehta Committee

● It was appointed in 1957 to examine and suggest measures for better

working of the Community Development Programme and the National
Extension Service.Recommendations by the Committee were:
● There should be a three-tier Panchayati Raj system with Gram panchayat
at the village level, Panchayat Samiti at the block level, and Zila Parishad
at the district level with all planning and development activities should be
entrusted to these bodies.
● The village panchayat shall be constituted with directly elected
representatives, whereas the panchayat Samiti and Zila Parishad shall be
constituted with indirectly elected members.
 ● The Panchayat Samiti should be the executive body while the Zila
Parishad should be the advisory, coordinating, and supervisory body with
the District Collector as the chairman.

Constitutionalisation Of Panchayati Raj- 73rd Constitution Amendment

Act Of 1992

● Due to the sustained effort of the civil society organizations, intellectuals,

etc, the Parliament passed two amendments to the Constitution – the 73rd
Constitution Amendment for rural local bodies (panchayats) and the 74th
Constitution Amendment for urban local bodies (municipalities) making
them institutions of self-government.

Significance of the Act

● It added Part IX (Article 243 to Article 243 O) to the Constitution, “The

Panchayats” and also added the Eleventh Schedule which consists of the
29 functional items of the panchayats.
● It provides shape to Article 40 of the Constitution which directs the state
to organise the village panchayats and provide them powers and authority
so that they can function as self-government.
● It gives constitutional status to the Panchayati Raj institutions and
brought them under the purview of the justiciable part of the Constitution.

Salient Features of the 73rd Constitution Amendment Act of 1992

Gram Sabha

● It is a village assembly consisting of all the registered voters within the

area of the panchayat, deemed to be the primary body of the Panchayati
Raj system.
● It exercises powers and performs such functions as determined by the
state legislature.

Three-tier system

● The Act provides for a three-tier system of Panchayati Raj in the states
(village, intermediate, and district level).
● However, States with a population of not more than 20 lakhs may not
constitute the intermediate level.
Election of members and chairperson

● The members to all the levels of the Panchayati Raj are elected directly
while the chairpersons to the intermediate and the district level are
elected indirectly from the elected members.
● Also, the Chairperson at the village level is elected as determined by the
state government.

Reservation of seats

● It states that reservation is to be provided for SC and ST at all three tiers

by their population percentage.
● In the case of Women, not less than one-third of the total number of seats
to be reserved for women. There is also a provision that not less than
one-third of the total number of offices for chairpersons at all levels of the
panchayat be reserved for women.
● The act also authorizes state legislatures to decide on the reservation of
seats in any level of panchayat or office of chairperson in favor of
backward classes.

Duration of Panchayat

● The Act provides for a five-year term of office to all the levels of the
panchayat which can also be dissolved before the completion of its term.
● Further, fresh elections to constitute the new panchayat shall be
completed:
● before the expiry of its five-year duration. in case of dissolution;
● before the expiry of a period of six months from the date of its
dissolution.

Disqualification

● A person shall be disqualified for being chosen as or for being a member

of panchayat if he is so disqualified:
● Under any law for the time being in force for elections to the legislature
of the state concerned.
● Under any law made by the state legislature. However, no person shall be
disqualified on the ground that he is less than 25 years of age if he has
attained the age of 21 years.
● Also, all questions relating to disqualification shall be referred to an
authority determined by the state legislatures.
State Election Commission

● It is responsible for superintendence, direction, and control of the

preparation of electoral rolls and conducting elections for the panchayat.
● It consists of a state election commissioner appointed by the Governor.
The Governor determines the conditions of service and tenure of office of
the state election commissioner.
● The state legislature may make provisions concerning all matters relating
to elections to the panchayats.

Powers and Functions

● The Panchayats may be endowed with such powers and authority as may
be necessary to enable them to function as institutions of self-government
by the state legislature.
● Such a scheme may contain provisions related to Gram Panchayat’s work
concerning the preparation of plans for economic development and social
justice and the implementation of the same.

Structure of administration

Gram Panchayat:
It is the first tier of Panchayati Raj system. It is the executive body of Gram
Sabha. The size and term of Gram Panchayat varies from state to state. The
Assam Act provides for the smallest number (I to 15), whereas Andhra Pradesh
and Orissa have provision for larger bodies (15 to 17) and (11 to 25)
respectively.

Functions of Gram Panchayat:

Panchayats have both obligatory and discretionary functions:

(a) Obligatory function.

(b) Discretionary function.

The experience shows that panchayats have been charged with too many
functions and their resources are not adequate even to perform the mandatory
functions effectively. The Balwant rai Mehta Committee did not recommend
provision for statutory committees in the panchayats.

However, there are provisions for the constitution of committees of village

panchayats, in several states. For example, Andhra Pradesh provides for four
committees of village panchayats, Gujarat and Karnataka three obligatory
committees, Madhya Pradesh seven committees, Rajasthan one committee and
UP provides for four committees. In Tamilnadu there is no provision for the
formation of committees of the panchayats.

Panchayats have two-fold functions—civic and developmental. Civic functions

include sanitation, conservancy, water supply, construction and maintenance of
roads, lighting, maintenance of burial grounds, primary education etc. In
addition, the panchayat also acts as the agent of the panchayat samiti in
executing schemes of development at the village level.

2. Panchayat Samiti:
This is the second tier of the Panchayati Raj. The Balvantray Mehta Committee
report envisaged the Samiti as a single representative and vigorous democratic
institution to take charge of all aspects of development in rural areas.

Since the Samitis correspond geographically to the Community Development

blocks, there is a good deal of convergence with regard to their functions. The
Panchayat Samitis perform most of the functions related to planning and
development. Their nomenclature differs from state to state.
The area of operation of the Panchayat Samiti is usually the same as that of the
development block. In some states, however the samiti is at the tehasil level
(which covers a much wider geographical area and more villages) while in some
other states it is at the taluk level. The average population under a Samiti is
about 80,000 but the range is from 35,000 to 1, 00,000.
3. Zilla Parishad:
At the topmost tier, i.e. the District Level is the Zilla Parishad which is
primarily a coordinating body supervising the activities of the Panchayats and
Panchayat Samiti. There is no uniformity regarding the functions of the Zilla
Parishad. In states like Rajasthan, Tamil Nadu, Assam mid Orissa, the Zilla
Parishad is an advisory, supervisory and a coordinating body.

Functions of Zilla Parishad:

Zilla Parishads are mainly entrusted with coordinating and planning functions
along with a few executive functions. Some of I he important functions of Zilla
Parishad are examination and approval of the budgets of Panchayat Samitis,
distribution of funds between the various Blocks, Co-ordination and
consolidation of Block Plans and general supervision of the activities of
Panchayat Samitis.

RURAL FINANCE
A number of banks and finance companies have begun to specialize in offering
credit to farmers. Finance in this sector has the added benefit of supporting
further work in regional areas. As banks and
financial services continue to extend their services into rural India they are
generating employment in the vicinity. Rural finance is a line of credit
specifically intended for the requirements of the agricultural industry.Ranging
from mortgage assistance to land development and farming equipment, these
credit plans are a
significant aspect of rural and semi-urban support. In a country like India,
farming finance is a service of utmost importance and closely related to the
continued progress of the country, as agriculture continues to play a central role.
Finance Presence in Rural India
Financial aids for the poor clusters in rural areas today are in the following
forms:
• Nationalized Banks
• Private Banks
• Credit Societies
• Co-operative Banks
• Informal loans (Money Lenders)
Nationalized Banks – Regional Rural Banks (RRB/ Gramin)
Rural banking in India started since the establishment of banking sector in India.
Rural Banks in those days mainly focused upon the agro sector. Regional rural
banks in India penetrated every corner of the country and extended a helping
hand in the growth process of the country.Till date in rural banking in India,
there are 14,475 rural banks in the country of which 2126 (91%) are located in
remote rural areas.
SBI
SBI, has a breathtaking rural branch network of 6,600 with 972 specialized
branches. Thesebranches have been set up in different parts of the country with
the sole purpose of developing agriculture through credit deployment.SBI has
developed rural agricultural business units, education programmes for local
farmers and “kisan” cards. SBI has gradually evolved to become the leader in
agricultural finance with a portfolio of Rs. 18,000 crore in loans to around 50
lakh farmers.
• One of their recent endeavors is the tie-up with National Agricultural
Cooperative Marketing Federation (NAFED) to finance farmers for cultivation
of various crops like soyabean, paddy, jute and potato. SBI has 30 Regional
Rural Banks in India known as RRBs. The rural banks of
SBI is spread in 13 states extending from Kashmir to Karnataka and Himachal
Pradesh to North East. The total number of SBIs Regional Rural Banks in India
branches is 2349 (16%).
Canara
Canara has launched aggressive grass-root level plans, in a bid to achieve 100%
financial inclusion in 1,400 villages all over India, which could bring 7 lakh
families into their net. Under this programme, every adult member of a rural
household in the selected villages would be encouraged to open a 'No Frills'
account with minimum entrylevel formalities.
Private banks- Commercial ICICI
ICICI Bank, the country‟s second largest bank, has adopted the franchise model
of operation in rural markets. A one man office (known as “kendra”) in the
village forms an interface between the villager and the Bank‟s products and
facilities. Crop loans, housing loans, automobile loans, farm equipment, seed
financing and insurance policies are all on offer. The number of borrowers has
risen from 130 in 2000 to over 42,000 today, and the rural loan book has crossed
Rs. 16,000 crore. And the bank‟s default rate in the rural retail sector is 1 – 2 %
as compared to 2 – 3% in the rural wholesale sector and 5% for the banking
sector as a whole. ICICI is looking at tying up with micro-finance institutions
and local selfhelp groups (or creating them if already do not exist). ICICI has
gone further in tying up with large corporate majors having significant presence
rural India and providing loans/banking services to their distributors/traders and
also it is working in tandem with postal department.
Foreign Banks
• Foreign Banks like Citibank, HSBC and Standard Chartered are now looking
“villageward”. Citi is reported to be in the hunt for several rural branch licenses.
There is a new focus on the SME segment as well. More or less, all the banks
are using an agent-based model , as the typical branch based model does not
work here due to cost economics. Many banks have solutions for Mobile-based
services to reach rural consumer directly into their hand.
Cooperative Banks Credit Cooperatives
Rural Credit Cooperatives have existed in India for a long time. A shortage of
supply of rural credit was prevalent in India. To meet the demand for short and
long term rural credit the Co-operative Credit Structure (CCS) was set up.While
short term credit is supplied by the State Cooperative Banks (SCB), District
Central Cooperative Banks (DCCB) and Primary Agricultural Credit Societies
(PACS), long term credit is supplied by the Primary Cooperative.

Agriculture and Rural Development Banks (PCARDB)

The Co-operative Credit Structure (CCS) of India was set up to serve the needs
of both short term and long term rural credit in India.
Short term credit is supplied in rural India by three institutions –
• State Cooperative Banks (SCB)
• District Central Cooperative Banks (DCCB)
• Primary Agricultural Credit Societies (PACS)
Long term credit is supplied by the
• Primary Cooperative Agriculture and
• Rural Development Banks (PCARDB)
Credit Societies - Small Scale Finance Organizations
• There are two types of financial organizations that provide small‐scale
entrepreneur support.
• Microfinance institutions (MFI)
• Small Organizations/NGOs/SHG
Microfinance institutions
MFI Their amounts are often too small to be used for the intended (pr oductive)
purposes, such as Upgrading an existing venture, as well a s for their lack of
nonfinancial support. However, some MFI‟s, notably BASIX, a livelihood
finance provider, an d SKS, are using financing models that go beyond the
traditional mic rofinance funds to support small‐scale entrepreneurs as an altern
ative investment opportunity in rural
areas. These MFI‟s provide larger grants coupled with non‐financial support for
rural ventures that promise increased employment opportunities for the po or.
Already established in rural areas, MFI‟s have an advantage in local networks
and understanding about the risks of a potential investment.
Small Organisations- NGOs/SHOs
There are other organizations involved in financing rural entrepreneurs or
infrastructure in villages, often with a specific remit such as environmental
sustainability.
Financial organization such as S3IDF work together with local NGOs/S HGs to
provide basic infrastructure services in rural areas and train loc al entrepreneurs
to take charge of the projects or services. Finance is the primary service, but
these organizations provide additional services to link the technology with
finance and suppliers.
NABARD
National Bank for Agriculture and Rural Development (NABARD)
NABARD is a development bank focussing primarily on the rural sector of the
country. It is the apex banking institution to provide finance for Agriculture and
rural development. Its headquarter is located in Mumbai, the country’s financial
capital.

▪ It is responsible for the development of the small industries, cottage

industries, and any other such village or rural projects.
▪ It is a statutory body established in 1982 under Parliamentary
act-National Bank for Agriculture and Rural Development Act,
1981.

Functions
NABARD’s initiatives are aimed at building an empowered and financially
inclusive rural India through specific goal oriented departments which can be
categorized broadly into three heads: Financial, Developmental and
Supervision.
It provides refinance support for building rural infrastructure.It prepares
district level credit plans to guiding and motivating the banking industry in
achieving these targets.
It supervises Cooperative Banks and Regional Rural Banks (RRBs) and
helping them develop sound banking practices and integrate them to the CBS
(Core Banking Solution) platform. Core Banking Solution (CBS) is
networking of branches, which enables Customers to operate their accounts,
and avail banking services from any branch of the Bank on CBS network,
regardless of where he maintains his account. The customer is no more the
customer of a Branch. He becomes the Bank’s Customer.
It is involved in designing Union government’s development schemes and
their implementation. It provides training to handicraft artisans and helps them
in developing a marketing platform for selling these articles.
NABARD has various international partnerships including leading global
organizations and World Bank-affiliated institutions that are breaking new
ground in the fields of rural development as well as agriculture.
These international partners play a key consultant’s role in providing advisory
services as well as financial assistance designed to ensure uplifting of rural
peoples as well as optimization of various agricultural processes.

Role of Regional Rural Banks in

development of Rural economy
The important of the rural banking in the economic development of a country
cannot be overlooked. As Gandhi said “real India lies in village” and village
economy is the backbone of Indian economy. Without the development of the
rural economy, the objective of economic planning cannot be achieved. Banks
and other financial institutions are considered to be a vital role for the
development of the rural economy in India. Regional Rural Banks (RRBs) were
established in October 2, 1975 and are playing a pivotal role in the economic
development of the rural India. The main goal of establishing Regional Rural
Banks in India is to provide credit to the rural people who are not economically
strong enough, especially the small and marginal farmers, artisans, agricultural
laborers and even small entrepreneurs. The present study is a modest attempt to
make an appraisal of the rural credit structure and the role played by RRBs in
the development of rural economy. The objective of this paper is to analyses the
rural credit and the role played by the RRBs in the priority and non-priority
sector landings.
Activities of modern economy are significantly influenced by the functions and
services of banks. Banking sector constitutes the core part of economic system.
Indian economy is agricultural economy and real India lies in villages. Village
economy is the backbone of Indian economy. Even after 60 years of
independence, the rural economy in India is still handicapped in terms of
infrastructure and other chronic problems of cultivators. In fact, economic
progress and industrial development are determined by the rural sector. More
than 70% of Indians depend on agriculture; 60% of industries are agro based;
50% of national income is contributed by rural sector and the agricultural sector
is the largest foreign exchange earner to India. Such an essential and key sector
is neglected by financial institutions and especially by the banks.
Regional Rural Banks (RRBs) are constituted to meet the financial and banking
needs of weaker sections of the rural areas with a special attention on small and
marginal farmers, agricultural laborers, artisans, landless farmers, small traders,
tint enterprises etc. Hence, RRBs were established in India in 1975 essentially
for the purpose of taking banking service to the doorsteps of rural people,
particularly in places where banking facilities are not available. In general,
RRBs are commercial banks but they adopt some of the principles of
cooperatives such as location in areas, work for rural population in a limited
area etc. Thus they are hybrid institutes. RRBs operate under the control of two
institutions, the National Agricultural Bank and Rural Development
(NABARD) and Reserve Bank of India (RBI). The primary objective of this
study is to analyze the performance in terms of loans provided to the priority
and non-priority sectors of the country and especially various types of loans
such as crop loans, term loans, loans to rural artisans, retail trade, small scale
industries and self-help groups etc.

Regional Rural Banks (RRBs) in India

Rural people in India such as small and marginal farmers, landless agricultural
laborers, artisans and socially and economically backward castes and classes,
have been exploited in the name of credit facility by informal sectors. The rural
credit market consists of both formal and informal financial institutions and
agencies that meet the credit needs of the rural masses in India. The informal
sector advances loans at very high rates of interest; the terms and conditions
attached to such loans have given rise to an elaborate structure of intimidation
of both economic and noneconomic conditions in the rural population of India.
The supply of total formal credit is inadequate and rural credit markets are
imperfect and fragmented. Moreover, the distribution of formal sector credit has
been unequal, particularly with respect to region and class, cast and gender in
the country side.
The history of Regional Rural Banks in India dates back to the year 1975. It’s
the Narasimham committee that conceptualized the foundation of Regional
Rural Banks in India. The committee felt the need of regionally oriented rural
banks’ that would address the problems and requirements of the rural people in
India. Regional Rural Banks were established under the provisions of an
Ordinance promulgated on the 26th September 1975 and the RRB Act, 1975
with an objective to ensure sufficient institutional credit for agriculture and
other rural sectors. The RRBs mobilize financial resources from
rural/semi-urban areas and grant loans and advances mostly to small and
marginal farmers, agricultural laborers and rural artisans. For the purpose of
classification of bank branches, the Reserve bank of India defines rural area as a
place with a population of less than 10,000.RRBs are jointly owned by
Government of India, the concerned State Government and Sponsor Banks; the
issued capital of a RRB is shared by the owners in the proportion of 50%, 15%
and 35% respectively. The objectives of RRBs can be summarized as follows:
1. To provide cheap and liberal credit facilities to small and marginal farmers,
agriculture
2. Laborers, artisans, small entrepreneurs and other weaker sections.
3. To save the rural poor from the moneylenders.
4. To act as a catalyst element and thereby accelerate the economic growth in
the particular region.
5. To cultivate the banking habits among the rural people and mobilize savings
for the economic development of rural areas.
6. To increase employment opportunities by encouraging trade and commerce
in rural areas.
7. To encourage entrepreneurship in rural areas.
8. To cater to the needs of the backward areas which are not covered by the
other efforts of the Government.
9. To develop underdeveloped regions and thereby strive to remove economic
disparity between regions.
Role of Regional Rural Banking for Rural Development:
Regional Rural Banks were established with the following responsibilities in
mind:
1) Taking the banking services to the doorstep of rural masses, particularly in
hitherto unbanked rural areas.
2) Identify the financial need especially in rural areas.
3) Making available institutional credit to the weaker section of the society who
had by far little or no access to cheaper loans and had perforce been depending
on the private money lenders.
4) To enhance banking & financing facilities in backward or unbanked areas.
5) Mobilize rural savings and channelize them for supporting productive
activities in rural areas.
6) To provide finance to the weaker sections of society like small farmers, rural
artisans, small producer, rural labourers’ etc.
7) To create a supplementary channel for the flow the central money market to
the rural areas through refinances.
8) To provide finance to co-operative societies, Primary Credit societies,
Agricultural marketing societies.
9) Generating employment opportunities in rural areas and bringing down the
cost of providing credit to rural areas.
10) Enhance & improve banking facilities to semi urban, rural & other untapped
market. With these objectives in mind, knowledge of the local language by the
staff is an important qualification.

Government & Non-Government Organizations

Social service has been an integral part of Indian culture. Soon after
Independence, a number of NGOs had emerged in India. Mahatma Gandhi even
pleaded to dissolve the Indian National Congress and transform it to a Lok Seva
Sangh (Public Service Organization). Though his plea was rejected, but the
followers of Mahatma Gandhi started many voluntary agencies to work on
various social as well as economic issues of the country. This was the first phase
of NGOs in India.
second phase of NGO development started in 1960 when it was felt that just the
government programs were not sufficient to complete the task of development
in rural areas. Many groups were formed whose role was to work at grass root
levels. Moreover, favorable state policies had drastically affected the formation
of NGOs and their roles at that time. Over the years, the role of NGOs in rural
development of India increased. At present too, their role significantly changes
with the change in the policies of the government through different plans.
sixth five-year plan (1980-1985), a new role for NGOs in the rural development
had been identified by the government. In the seventh five-year plan
(1985-1990), the Indian government envisaged an active role of NGOs in
developing self-reliant communities. These groups were supposed to show how
the village resources along with human resource, skill, local knowledge that is
greatly underutilized could be used for their own development. As NGOs were
working in close connection with local people so bringing such a change was
not a tough task for them.

Owing to this, in the eighth five-year plan, more importance to NGOs for rural
development in India had been given. Under this scheme, a nation-wide NGO
network had been created. The role of these agencies was the rural development
at a low cost.

In ninth five-year plan, it has been proposed that NGOs would play a significant
role in the development on the public-private partnership model. More scope
has been provided to NGOs by the government for rural development through
the agricultural development policies as well as their implementation
mechanisms.

As with every five-year plan, the role of NGOs in the rural development of
India is growing, so NGOs are now attracting professionals from different
fields. NGOs act as planners and implementers of developmental plans. They
help in mobilizing the local resources to be used for development. NGOs help in
building a self-reliant and sustainable society. These agencies play the role of
mediator between people and government. NGOs are actually the facilitator of
development, education and professionalization.

Government Organisations for Rural Development

Rural Development Organizations in India
The majority of the population of India dwells in villages. However, due to poor
connectivity with cities and towns, lack of schools, and lack of knowledge of
modern farming techniques, life in most of these villages is delinked from the
modern conveniences one enjoys in towns and cities.
For the overall development of the country, rural development programmes and
schemes are important. In general, rural development denotes community and
economic development initiatives and actions taken to improve the standard of
living of remote villages, non-urban localities and the countryside.
The Government organizations for rural development in India aim to better the
social and economic lives of poor people by providing financial aid.
Here are the names of a few such organizations that have contributed greatly
to the development and welfare of the Indian rural sector:

1. National Bank for Agriculture and Rural Development

» NABARD is an apex of Indian development financial institution,
headquartered in Mumbai.
» The institution has regional offices all across the country.
» The bank has been entrusted with matters concerning policies, planning, and
operations in the credit field for agriculture and similar activities in the rural
areas.
» NABARD looks after the development of small-scale village industry and
cottage industry.
» The bank also coordinates the financing activities of all institutions involved
in developmental work at the field level and maintains an association with the
Reserve Bank of India, State Government, Central Government, and various
national-level organizations concerned with the formulation of the policies.

2. Khadi and Village Industries Commission

The Government of India formed a statutory body, the Khadi and Village
Industries Commission, under the Parliament Act, in 1956. Under the Ministry
of Micro, Small and Medium Enterprises, this apex organization seeks to
promote, plan, organize, assist, and facilitate the development and establishment
of village and khadi industries in the rural locations in coordination with other
organizations involved in rural development wherever required.
The Commission aims to fulfil three objectives by monitoring and
implementing various programmes and schemes. The objectives are –
» Providing employment opportunities to the rural population
» Providing saleable articles
» Creating self-reliance among rural people and building a strong community
spirit

3. Centre of Science and Technology for Rural Development

Headquartered in Thrissur and operative in 13 other sub-centres including
Gurgaon and Kerala, the organization strives to change the economic and social
status of the poor by providing eco-friendly, low-cost housing technology using
transparent, gender-sensitive, and participatory procedures.

4. Ministry of Rural Development

The Ministry of Rural Development is a branch of the Indian Government,
entrusted with the task of advancing the socio-economic development of rural
India with special respect to education, health, hygiene, drinking water, roads
and housing.
Besides, nowadays, several Non-governmental Organizations like Salaam
Bharat, Sehgal Foundation, Sanjeevani, and Rural Development Foundation,
India are actively participating in rural development programmes, and reaching
out to the poor to provide financial aid with the aim of improving the current
scenario of rural India.
Rural development in India is an important topic for your upcoming NABARD
exams, so make sure you have a comprehensive knowledge of the same.
Practice previous years’ question papers and sit for regular mock tests to nail
your preparation.

Community Based Organizations

Community based organizations (CBO's) are non profit groups that work at a
local level to improve life for residents. The focus is to build equality across
society in all streams - health care, environment, quality of education, access to
technology, access to spaces and information for the disabled, to name but a
few. The inference is that the communities represented by the CBO's are
typically at a disadvantage. CBO's are typically, and almost necessarily, staffed
by local members - community members who experience first hand the needs
within their neighborhoods. Besides being connected geographically, the only
link between staff members and their interests is often the desire and willingness
to help. Occupational skill sets and experience are greatly diverse.
 
The tightrope upon which stability balances in this type of organization is being
stretched taut, as the role of the CBO is extended to new lengths. Governments
are increasingly delegating responsibility to CBO's and relying on them to
gather local concerns, develop, plan, and help deliver solutions. CBO's are
storehouses, gatekeepers, of local information obviously valuable for their own
purposes, but this data is also useful to other organizations and government
agencies. The role of CBO's is becoming knowledge management - to compile,
sort, store and retrieve local data. Technology is increasingly becoming more
important to this function, to manage daily business operations, but also to
develop innovative solutions, given restrictive budgets, limited personnel
available, and new demands for services and information. Technology is being
used to bring in the voice of the community members, through public
participation and input. Applications include mapping of community landmarks
and services by locals, providing environmental baseline and change
measurements, and identifying concerns common throughout the community.
 
Work conducted by CBO's generally falls into the themes of human services,
natural environment conservation or restoration, and urban environment safety
and revitalization. Examples include:
 
- Neighborhood revitalization
- Affordable housing
- Food security
- Accessible transportation
- Senior citizens associations
- Environmental protection/conservation
- Community sustainability
- Humanitarian/disaster response
- Medical relief funds
- Youth homes and centers

Self Help Groups (SHGs)

▪ Self-Help Groups (SHGs) are informal associations of people who
choose to come together to find ways to improve their living
conditions.
▪ It can be defined as self governed, peer controlled information group
of people with similar socio-economic background and having a
desire to collectively perform common purpose.
▪ Villages face numerous problems related to poverty, illiteracy, lack
of skills, lack of formal credit etc. These problems cannot be tackled
at an individual level and need collective efforts.
▪ Thus SHG can become a vehicle of change for the poor and
marginalized. SHG rely on the notion of “Self Help” to encourage
self-employment and poverty alleviation.

Functions

▪ It looks to build the functional capacity of the poor and the

marginalized in the field of employment and income
generating activities.
▪ It resolves conflicts through collective leadership and mutual
discussion.
 ▪ It provides collateral free loan with terms decided by the group at
the market driven rates.
▪ Such groups work as a collective guarantee system for members
who propose to borrow from organised sources. The poor collect
their savings and save it in banks. In return they receive easy access
to loans with a small rate of interest to start their micro unit
enterprise.
▪ Consequently, Self-Help Groups have emerged as the most effective
mechanism for delivery of microfinance services to the poor.
Need for SHGs

▪ One of the reasons for rural poverty in our country is low access to
credit and financial services.
▪ A Committee constituted under the chairmanship of Dr. C.
Rangarajan to prepare a comprehensive report on 'Financial
Inclusion in the Country' identified four major reasons for lack of
financial inclusion:
o Inability to provide collateral security,
o Poor credit absorption capacity,
o Inadequate reach of the institutions, and
o Weak community network.
▪ The existence of sound community networks in villages is
increasingly being recognised as one of the most important elements
of credit linkage in the rural areas.
▪ They help in accessing credit to the poor and thus, play a critical role
in poverty alleviation.
▪ They also help to build social capital among the poor, especially
women. This empowers women and gives them greater voice in the
society.
▪ Financial independence through self-employment has many
externalities such as improved literacy levels, better health care and
even better family planning.
Benefits of SHGs

▪ Social integrity – SHGs encourages collective efforts for combating

practices like dowry, alcoholism etc.
▪ Gender Equity – SHGs empowers women and inculcates leadership
skill among them. Empowered women participate more actively in
gram sabha and elections.
▪ There is evidence in this country as well as elsewhere that formation
of Self-Help Groups has a multiplier effect in improving women’s
status in society as well as in the family leading to improvement in
their socio-economic condition and also enhances their self-esteem.
▪ Pressure Groups – their participation in governance process enables
them to highlight issues such as dowry, alcoholism, the menace of
open defecation, primary health care etc and impact policy decision.
▪ Voice to marginalized section – Most of the beneficiaries of
government schemes have been from weaker and marginalized
communities and hence their participation through SHGs ensures
social justice.
▪ Financial Inclusion – Priority Sector Lending norms and assurance
of returns incentivize banks to lend to SHGs. The SHG-Bank linkage
programme pioneered by NABARD has made access to credit easier
and reduced the dependence on traditional money lenders and other
non-institutional sources.
▪ Improving efficiency of government schemes and reducing
corruption through social audits.
▪ Alternate source of employment – it eases dependency on agriculture
by providing support in setting up micro-enterprises
e.g. personalised business ventures like tailoring, grocery, and tool
repair shops.
▪ Changes In Consumption Pattern – It has enabled the participating
households to spend more on education, food and health than
non-client households.
▪ Impact on Housing & Health – The financial inclusion attained
through SHGs has led to reduced child mortality, improved maternal
health and the ability of the poor to combat disease through better
nutrition, housing and health – especially among women and
children.
▪ Banking literacy – It encourages and motivates its members to save
and act as a conduit for formal banking services to reach them.