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The Return of the Phoenix

The co-operative movement in India was started to cater to the needs of poor people in terms of food and finance. While most of the numerous co-operative movements in India have failed for a variety of reasons, corruption being a primary one, in quite a few places it has succeeded. Probably the greatest, and certainly the best known, is the Anand Milk Producers Co-operative in Gujarat, better known by its Amul brand of products. Another phoenix-like success story, not so well known, is in Kurumbur, in southern Tamil Nadu.

The Kurumbur Primary Co-operative Agricultural Bank, started in 1973, went the way of most co-operatives. In its first seven years, it accumulated losses estimated at Rs 1.2 million, jeopardising the small savings of thousands of rural people. The state government then placed it in suspended animation for the next five years.

Enter the phoenix. In 1985, a 22-year-old history graduate joined the bank as secretary. J Devarajan, who had done a course in co-operative banking, was given just Rs 100,000 and asked to revive the bank's fortunes. Devarajan discovered he was the only man working in the bank. Undaunted, he rented a room for himself in the bazaar, close to the bank, and then set about his Herculean task.

The first thing he did was to lend small amounts to farmers against gold. He charged them a very low rate of interest. A few farmers opened saving accounts in the bank. After some time, he started supplying fertilisers to farmers. Again, his prices were cheaper than the market prices. In the next stage, he gave loans of fertiliser and cash to farmers without demanding gold.

Devarajan now hired his first employees, two girls on a temporary basis. A visitor to the bank when he was not around was simply told "Sir, not here", revealing that Devarajan was still the whole and sole of the set-up. After the fertiliser shop, Devarajan opened three ration shops, which set off a growth chain. The staff and the turnover increased by leaps and bounds.

Then came his coup de grace, He started a home banking service in 1989, years before any foreign or private bank would do the same in the metros. His motive was simple: villagers normally do not save cash because their earnings are quite low. But the bank staff were undeterred. They went from house to house in Kurumbur village, asking for deposit amounts as little as Rs 5. They often went to houses daily. It was revolutionary! Old men and women, who had never put a rupee into a bank in all their lives, suddenly discovered the virtues of banking.

The bank's success has its share of critics. Perhaps the greatest is that the money and gold stored in the bank is not insured! Also, the bank has a habit of holding back 10 per cent of every loan given out as share capital. Reason: the bank gives loans only to shareholders.

Another complaint is that many of the goods from the bank's ration shops are to be found in the market. Devarajan, in reply reminiscent of bureaucrats, said the individual in the shop is solely responsible for such leakages. However, since the bank is autonomous, errant staff members have little to fear by way of transfers.

Have all the schemes helped the bank achieve a profit? Devarajan declares that the accumulated losses of Rs 1.2 million were cleared only recently, and that 1996-97 was the first profitable year. He has promised to declare a dividend once the accounts are audited.

For poor rural people, such co-operative banks are a boon. For instance, unlike city-based banks, rural co-operative banks give micro-credit loans of as little as Rs 400. An advantage of a co-operative bank over nationalised banks is that politicians rarely interfere in the former due to its small base. And if at all a politician does interfere, the secretary can get away by quoting the co-operative bank rules.

The Kurumbur bank is also popular for its flexibility. It has no fixed timings, though the staff normally work up to 1700 hours, often beyond (unlike nationalised banks, which are very strict about timings). Interest paid on fixed deposits is 1.5 per cent more than what government banks pay. To motivate the staff to collect more funds, they get 0.5 per cent as commission of the amount collected for fixed deposits of three years or more. Loans to the agricultural sector, at 12 per cent, are also cheaper than most nationalised banks.

And believe it or not, the bank has now moved into financing consumer goods. The bank has begun to offer loans for items such as television sets! Said an elderly villager, "We are very happy with the bank because now it gives loans for television sets."

The only thing the villagers are upset about is that since last year, the bank is also running a liquor shop. "A bank set up to benefit the poor selling liquor is the only deplorable thing they do," said one elderly villager, but added, "The co-operative movement has a bright future as long as we have such honest people around." It certainly does, considering that while Devarajan started with only Rs 100,000, the Kurumbur bank today boasts a working capital of Rs 27.5 million.