I Do What I Do

by Raghuram G. Rajan

As I argued earlier, the moneylender is particularly effective because he knows the neighbourhood and its people, and can make a good assessment of who is creditworthy. A large national bank with a local branch suffers from two infirmities. First, the branch manager has typically been recruited through an all-India exam, is from a different state, and is not intimately familiar with the local people. While many good branch managers do indeed learn about the community, some do not. The higher socio-economic status of bank officers also creates a distance with the poorer segments of the community, and their high salary makes many branches in remote areas economically unviable even if they could solicit business intelligently. Finally, given that the excluded do not have formal documents, bank managers in large banks with bureaucratic centralized procedures find it hard to provide effective service – how does one convey to head office the rationale for a loan to an intelligent, enthusiastic tribal who wants to set up a small shop, but who has no formal education or track record?