Role of financial institution in rural marketing

Agriculture creditThe purpose of agriculture credit is to bridge the demand and supply gap to provide the finance to small and marginal farmer.

Agriculture credit are used for agriculture inputs which include the fertilizer, machinery agriculture tools etc.

Its is the challenge for our country right from pre independence era.

The Government of India has initiated several policy measures to improve the accessibility of farmers to the institutional sources of credit.

The Policy lays emphasis on augmenting credit flow at the ground level through credit planning, adoption of region-specific strategies and rationalization of lending Policies and Procedures.

These policy measures have resulted in the increase in the share of institutional credit of the rural households.

CREDIT NEEDS OF FARMERSON THE BASIS OF TIMESHORT TERM- (less than 15 months) seeds, fertilizers, pesticides, marketing, wage payment, consumption, productive purpose

MEDIUM TERM (15months 5yrs.) cattle, small implements, repair & construction of wells

LONG TERM (more than 5 yrs) permanent land improvement, buying land, repayment of old debts

ON THE BASIS OF PURPOSEPRODUCTIVE agro productionCONSUMPTION for the period between Marketing & harvestingUNPRODUCTIVE customs, traditions, rituals

ON THE BASIS OF SOURCESINSTITUTIONALNON-INSTITUTIONAL

NON-INSTITUTIONAL FINANCE IN INDIAN AGRICULTUREMoney Lenders, Chit Funds, relatives, friendsMain source of Agricultural Finance at the beginning of the planning period Share: 92% in 1951( money lenders 69.7%) to 25% 00-01MERITS DEMERITSEASY TO OBTAINSIMPLE PROCEDURESEASY ACCESSNO RESTRICTIONSCONSUMPTION LOANSEXORBITANT RATES OF INTERESTINDEBTEDNESSLOSS OF LANDMALPRACTICESEXPLOITATIONBONDED LABOUR

INSTITUTIONAL CREDIT IN INDIAN AGRICULTURESTRUCTURE OF INSTITUTIONAL CREDIT

FLOW OF INSTITUTIONAL CREDIT TO AGRICULTUREPERCENTAGE SHARESource: RBI bulletin, NOV 2004 & economic survey 2009-10

AGENCY1970s 1980s 2OOO-O1 2009-10COOPERATIVES 77.0 55.9 39.0 20COMMERCIAL BANKS 21.O 38.9 53.0 68REGINAL RURAL BANKS 2.0 5.2 8.0 12

COOPERATIVES: RURAL CREDIT AT LOWER COSTCoverage: by 2005, 97% villages with almost 900 lakh membersSTRUCTURESHORT & MEDIUM TERM LONG TERM

IN 1971, LARGE SIZED ADIVASI MULTI PURPOSE COOPERATIVE SOC. LAMPSPROBLEMS: 1) LOW PROFITABILITY 2) POOR RECOVERY 3) LACK OF PROFESSIONAL MANAGEMENTCOMMERCIAL BANKSGROWTH IN RURAL CREDIT AFTER NATIONALIZATION. 18% net bank credit is for priority SectorShort term financeMedium & long term financeDirect finance: for expenditure of land development 10%Indirect Finance: finance to coop.s,to FCI (4%)

Lead Bank Scheme: individual commercial bank responsible for development of Individual district

LIMITATIONS:LOW QUALITY OF LENDING

TIME CONSUMING AND COSTLY OPERATION DUE TO SMALL SIZE OF LOANS

LOW LEVEL RECOVERY

MORE BRANCHES WITH LESS GROWTH POTENTIAL

REGIONAL IMBALANCE

LACK OF COORDINATION

REGIONAL RURAL BANKSWERE ESTABLISHED IN 1975 ON THE RECOMMENDATIONS OF M.NARSIMHA COMMITTEE

regionally based, rurally oriented and generally sposored by scheduled commercial banks and in some cases by private and state cooperative banks.

MAIN OBJECTIVE IS TO SUPPLY CREDIT TO THE AREAS IN WHICH OTHER FINANCIAL INSTITUTES ARE NOT ACTIVE.LIMITATIONS: POLITICAL INTERFERENCE, LOW RECOVERY

CHAITANYA GODAVARI GR BK ANDHRA BANK

SAPTAGIRI GRAMEENA BANK INDIAN BANK

DECCAN GRAMEENA BANK STATE BANK OF HYDERABAD

ANDHRA PRADESH GR.VIKAS BANK STATE BANK OF INDIA

ANDHRA PRAGATHI GRAMEENA BANK SYNDICATE BANK

NAME OF RRB SPONSORED BY:

NABARD 19821. NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT APEX BANK FOR RURAL CREDIT AND DEVELOPMENT.

SHARE CAPITAL CONTRIBUTED BY GOI & RBIHEAD OFFICE AT MUMBAI, 16 REGIONAL OFFICESFUNCTIONSAPEX BODY FOR RURAL CREDIT

SUPERVISING CO-OPS

SHORT TERM CREDIT TO STATE CO-OPS

MEDIUM & LONG TERM TO STATE CO-OPS AND RRB

SUGGESTIONS TO GOVT.

R & D

CONTRIBUTION OF NABARD TO AGRICULTURAL FINANCE2003-04 7626 schemes sanctioned of 7605/- Refinance to state government & co-op. banks Development of Rural Infrastructure Development Fund Promotion of Micro-finance Bulk Lending Support to NGOs Tribal Development Project in Gujarat (wadi project) Kisan Credit Card Scheme Gender Development through Credit: Assistance to Rural Women in Non-Farm Activities (ARWIND) Refinance under Swarnajayanti Gram Swarojgar Yojna Supervising body Farm Income Insurance Scheme ( FIIS) 2003-04 Differntial Rate of Interest (DRI) 1972

It was started by theGovernment of India,RBI, andNABARD

In year1998-99

Flexible and simplified procedure, adopting whole farm approach

Provide affordable credit for farmers in India.

Including the short-term credit, medium term and long term credit

KISAN CREDIT CARDSource-NABARD*

Exploitations of farmers by local money lenders To remove local money lenders (Saahukars, Mahajans ) Banks does not gives loans without any security or guaranteeBanks takes too much time to grant loans for agriculture.Too much documentation is required for agriculture loansHigh interest rates on agricultural loans

Need of kcc*

Government gives 50% subsidy on interest for one year.Charges only 3% interest rate on loans for 6 months. Provide health insurance up to 1 lakhs for farmers for three years in just Rs. 45 in which banks pay Rs. 30 on behalf of card holder.Crop insurance only on 3 % of total loanA local committee are formed who decided the per hectare amount of loan Local committee consist of officials form agriculture department , various banks , local government bodies.

Offering by kcc*

No need to apply for a loan for every crop

Assured availability of credit at any time

Helps buy seeds, fertilizers at farmers convenience and choice

Helps buy on cash-avail discount from dealers Credit facility for 3 years no need for seasonal appraisal

Maximum credit limit based on agriculture income

Any number of withdrawals subject to credit limit

Repayment only after harvest

Advantages of kccSource-NABARD*

State Cooperative Agriculture and Rural Development Banks (SCARDB) is a Central Sector Scheme of India which aims at raising resources of SLDBs(State Land Development Banks ) for long term lending to cultivators by way of floatation of debentures in vital areas such as Minor Irrigation, Farm Mechanization, Land Development, Horticulture, etc.

Under this scheme the SLDBs/SCARDBs raise resources for long term lending to cultivators by floatation of debentures in vital areas like Farm Mechanization, Land Development etc.

The debentures floated by the Banks are subscribed by NABARD, the concerned State Governments, Government of India and other financial institutions.

State Cooperative Agriculture and Rural Development Banks