Question

Explain the advantages and disadvantages of indigenous banker. What is its importance in our country?

Hint:

Indigenous bankers complement formal systems but need regulation to prevent exploitation.

Answer 1

Step 1: Advantages
- Prompt and flexible credit: Provide quick loans without extensive paperwork, based on personal trust.
- Support to small units: Offer financing to local entrepreneurs, farmers, and traders where formal banks may not reach.
- Cordial relationships: Build on community ties, preserving cultural heritage and promoting self-reliance.
- Competitive rates: Sometimes comparable to commercial banks, with large credit volumes.

Step 2: Disadvantages 
- Lack of regulation: No formal oversight, increasing fraud risks and exploitation through high interest rates.
- Informal nature: Limited transparency, inadequate documentation, and vulnerability to economic shocks.
- Limited services: Fewer products, lack of financial literacy, and outdated technology leading to inefficiencies.
- Exploitation: Potential for predatory practices in underserved areas.

Step 3: Importance in India
- Serves rural and unbanked populations: Fills gaps in formal banking, supporting agriculture, trade, and small businesses.
- Economic empowerment: Catalyzes entrepreneurship, sustainable growth, and internal trade.
- Cultural preservation: Maintains traditional systems, aiding in remittances and local financing despite modern banking's rise.