World Bank loan to fund India's rural poverty fight

from The Washington Post

NEW DELHI (Reuters) - The World Bank said on Wednesday it had approved a $600 million loan for India to help it revamp thousands of ailing rural cooperative banks and fight village poverty through cheap loans.

"Better access to finance for India's rural poor is absolutely critical for higher rural growth, for reducing inequality and ultimately, alleviating poverty," Isabel Guerrero, the bank's country director for India, said in a statement.

Last year, India approved a 135.96 billion rupee ($3.32 billion) package to refinance loss-making cooperative banks so they could start lending to poor farmers at cheaper rates.

It sought multilateral cash to part-finance the project.

So far, 12 of India's 29 states have sought financial help for their cooperative banks.

About 87 percent of marginal Indian farmers and 70 percent of small farmers have no access to credit from a formal financial institution, the World Bank said, adding they often have to rely on "extortionate" money lenders.

Thousands of farmers have committed suicide in recent years across India's sprawling western and southern plateau because they could not repay loans taken for their crops.

The absence of cheaper credit prevents farmers from adopting the latest technology, or buying quality seeds and fertilizers.

India's economy expanded by a red-hot 9.4 percent in 2006/07 but farm growth lagged seriously behind at just 2.7 percent. In May, Prime Minister Manmohan Singh announced a 250 billion rupee package over four years to boost farm growth and tackle pervasive poverty in villages which are home to nearly 70 percent of the country's 1.1 billion people.

The move followed a poor showing by the ruling Congress party-led coalition in several state elections.