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India’s Rural Financial System: Does it Support Pro-Poor Innovation?

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  • Sonne, Lina

    () (UNU-MERIT)

Abstract

From the perspective of poverty alleviation, socially relevant, or pro-poor, rural innovation is of particular interest in a country like India since it is in rural areas that most of the poor live. Pro-poor innovation in rural areas is more likely to occur through small-scale ventures and entrepreneurs than industrial research and development. The Indian banking system does not efficiently support such rural pro-poor entrepreneur-based innovation. Instead a pioneering alternative financing sector has been emerging recently. There are three broad categories of organisations in this sector: grassroots innovators and incubators, micro venture capital firms, and small-scale financiers beyond microfinance. This paper considers why the core of India’s financial system, its banking sector, does not support rural entrepreneur-based innovation. It ends by discussing the emerging alternative financing sector at the periphery which on the other hand appears able to do so.

Suggested Citation

  • Sonne, Lina, 2010. "India’s Rural Financial System: Does it Support Pro-Poor Innovation?," MERIT Working Papers 039, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  • Handle: RePEc:unm:unumer:2010039
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    File URL: https://www.merit.unu.edu/publications/wppdf/2010/wp2010-039.pdf
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    Keywords

    Pro-poor finance; finance innovation; finance entrepreneurship; financial innovation; rural finance; India; India’s financial system.;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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