Rural banking: misdirected policy changes
Abstract
Three policy alternatives can be identified for improving the profitability
of commercial banks' rural branches: closing loss-making rural branches,
improving the interest spread for these branches and diversifying lending
and deposit portfolios. The government has chosen the first two of these,
which is short-sighted, means piecemeal treatment of the problem and
ignores the objective of financial intermediation, whereas the third
alternative deals with the problem while serving the fundamental objective
of mobilising funds for agricultural and rural development.
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