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TABLE OF CONTENTS
1.0 Introduction to the Topic.…………………………………………………..…07
2.0 Introduction to the Organization/Industry………………………………… 11
3.0 Objectives of the Study……………………………………………………. 25
4.0 Scope of the Study………………………………………………………… 275.0 Research Methodology…………………………………………………… 29
5.1 Universe of the study…………………………….……………………5.2 Sample Size…………………………………………….………...........5.3 Sampling Method…………………………………………….………..5.4 Tools for Data Collection……………………………………..……….
6.0 Data Analysis & Interpretation……………………………………………. 31
7.0 Findings…………………………………………………………………….. 77
8.0 Recommendations & Suggestions………………………………………. 79
09.0 Conclusion…...…………………………………………………………… 829.1 Limitations of the Study……………………………………………..…… 84
Bibliography…………………………………………………………………...... 86
1
INTRODUCTION OF THE TOPIC
2
1.0 Defining Rural India:It is ironic that the census of India defines ‘rural ‘in the context of all that is not
urban considering that there were villages before the development of cities
and towns ..IN facts ,a major part of the countryside still remains steeped in a
lifestyle that is rural ,largely depend on agriculture and allied activities with
almost three-fourth of the country living in 6000 villages. It is ironic indeed
that despite having most of the natural resources of the country as well as a
superiority in number, rural has been deprived of the benefits of progress and
the product that go to making everyday life easier and more comfortable.
In 1951,the urban population comprised 17.2% of the Indian
population .Today ,half a century later the number stands at 27.8%,the result
of ,creeping urbanization ‘at play.
Meaning of an Underdeveloped Economy:
There is a big difference between underdeveloped and developed countries.
The United Nations group of experts states, “We have had some difficulty in
interpreting the term ‘underdeveloped countries’. We frankly consider that,
per capita real income is low when compared with the per capita real incomes
of the United States of America, Canada, Australia & Western Europe. Briefly
a poor country.
The term ‘underdeveloped countries’ is relative. In practical, those countries
which have real per capita incomes less than a quarter of the per capita
income of the United States, are underdeveloped countries. But recently UN
publication prefer to describe them as ‘Developing economies’. The term
‘developing economies’ signifies that though still underdeveloped, the process
of development has been initiated in these countries.
Thus, we have two economies ‘developing economies’ & ‘developed
economies’. The World Bank issued in its World Development Report (2001)
classified the various countries on the basis of Gross National Product (GNP)
3
per capita. Developing countries are divided into: (a) Low income countries
with GNP per capita of $580 and below in 1999; and Middle income countries
with GNP per capita ranging between $ 580 and $ 6,000. As against them,
the High-income Countries which are mostly members of the Organisation for
Economic Co-operation and development (OECD) and some others have
GNP per capita of more than $ 6,000.
The above data given in the table noted that in 1999 low income
countries comprise nearly 57 percent of the world population (2,948 million),
but account for only 5 percent of total world GNP. The middle income
countries, which are less developed than the highly developed than the low
income countries comprise about 21 percent of world population but account
for 11 percent of world GNP. Taking these two groups which are popularly
described as developing economies or ‘underdeveloped economies’, it may
be stated that they comprise over three-fourths of the world population but
account for about one-sixth of the world GNP. Most countries of Asia, Africa,
Latin America and some countries of Europe are included in them
Distribution of World Population & World GNP among various groups of Countries in 2011
GNP
(Billion
US $)
Total
Population
(million)
GNP Per
Capita
(US $)
1. Low Income Economies 981 (4.7) 2,948
(56.6)
330
2. Middle Income
Economies
2,253
(10.9)
1,105
(21.2)
2,040
3. High Income Economies 15,230
(73,4)
831 (16.0) 18,330
4. Other Economies ___ 323 (6.2) ___
World 20,736
(100.0)
5,206
(100)
3,980
India 283 (1.4) 832 (15.9) 340
4
India with its population of 832 million in 2011 and with its per capita income
of $340 is among poorest of the economies of the world. It had a share of
15.9 per cent in world population, but a little more than 1 percent of world
GNP.
Three observation made here regarding the U.N. classification of
developed and developing countries on the basis of per capita income. First,
there is gross inequality of incomes between the rich and the poor countries.
Second, the gap in per capita income (and naturally in the level of living)
between the rich and poor countries is even widening over the years—the
annual rate of growth of per capita income of the rich countries was higher
during 1986-2010 as compared with the poor countries. More recently, the
growth rate among low-income countries has also shown an increase and if
this is sustained, the gap may show a decline over a period. Third, all the high
income countries are not necessarily developed countries. For instance, the
high income oil-exporting countries have high per capita income but this is
mainly due to their exports of oil; really speaking, they are not developed
economies. Recently, with a decline in world oil prices, the GNP per capita
has started showing a decline in this group.
5
INTRODUCTION OF INDUSTRY
6
History of The Rural Economic Structure Of India:
1.1 Indian Economy in the Pre-British period:- The Indian economy in the pre-British period consisted of isolated and self-
sustaining villages on the one hand, and towns, which were the seats of
administration, pilgrimage, commerce and handicrafts, on the other. Means
transport & communication were highly underdeveloped and so the size of the
market was very small..
a. The structure and organization of villages: The village community was
based on a simple division of labour. The farmers cultivated the soil
and tended cattle. Similarly, there existed classes people called
weavers, goldsmiths, carpenters, potters, oil pressers, washer men,
cobblers, barber-surgeons, etc. All these occupations were hereditary
and passed by tradition from father to son. Most of the food produced
in the village was consumed by the village population itself. The raw
materials produced from primary industries were the feed for the
handicrafts. Thus interdependence of agriculture and hand industry
provided the basis of the small village republics to function
independently. The villages of India were isolated and self-sufficient
units which formed an enduring organization. But this should not lead
us to the conclusion that they were unaffected by wars or political
decisions. They did suffer the aggressors and were forced to submit to
exactions, plunder and extortion, but the absence of the means of
transport and communications and a centralized government helped
their survival.
7
b. Classes of Village India: There were three distinct classes in village
India: (i) the agriculturists, (ii) the village artisans and menials, and (iii)
the village officials. The agriculturists could be further divided into the
land-owning and the tenants. Labour and capital needed was either
supplied by the producers themselves out of their supplied by the
producers themselves out of their savings or by the village
moneylender. These credit agencies supplied finance at exorbitant
rates of interest but since the moneylender and the landlord were the
only sources of credit, the peasants and even the artisans were forced
to depend on them. The village artisans and menials were the servants
of the village. Most of the villages had their panchayats or bodies of
village elders to settle local disputes. The panchayats were the court
of justice.
3.2 Industries & handicrafts in Pre-British India: The popular belief that India had never been an industrial country, is
incorrect. It was true that agriculture was the dominant occupation of its
people but the products of Indian industries enjoyed a worldwide reputation.
The muslim of Dacca, the calicos of Bengal, the sarees of Banaras and other
cotton fabrics were known to the foreigners. The chief industry spread over
the whole country was textile handicrafts. The textile handicrafts includes
chintzes of Lucknow, dhotis and dopattas of Ahmedabad, silk, bordered cloth
of Nagpur and Murshidabad. In addition to cotton fabrics, the shawls of
Kashmir, Amritsar and Ludhiana were very famous. India was also quite well-
known for her artistic industries like marble-work, stone-carving, jewellery,
brass, copper and bell-metal wares, wood-carving, etc. The cast-iron pillar
near Delhi is a testament to the high level of metallurgy that existed in India.
In this way Indian industries, “Not only supplied all local wants but also
enabled India to export its finished products to foreign countries”.
Decline Of Indian Handicrafts And Progressive Ruralisation Of The Indian Economy: Before the beginning of Industrial Revolution in England, the East India
Company concentrated on the export of Indian manufactured goods, textiles,
8
spices, etc., to Europe where these articles were in great demand. But the
Industrial Revolution reversed the face of Indian’s foreign trade. Tremendous
expansion of productive capacity of manufactures resulted in increased
demand of raw materials for British industry and the need to capture foreign
markets. Following principal causes that led to the decay of handicrafts were
as follows:-
a. Disappearance of Princely courts: The growth of industries is only
possible due to patronage of nawabs, princes, rajas & emperors who
ruled in India. The British rule meant the disappearance of this
patronage enjoyed by the handicrafts. Cotton and silk manufactures
suffered especially.
b. Competition of machine-made goods: The large-scale production
that grew as a result of Industrial Revolution meant a heavy reduction
in costs. It also created a gigantic industrial organization and,
consequently, the machine-made goods began to compete with the
products of Indian industries nad handicrafts. This led to the decline of
textile handicrafts. Whereas the British emphasized the free import of
machine-made manufactured goods they did not allow the import of
machinery as such. The decline of Indian handicrafts created a
vaccum which could be filled by the import of British manufactures
only.
c. The development of new forms and patterns of demand as a result of foreign influence: With the spread of education, a new classs grew
in India which was keen to imitate western dress, manners, fashions
and customs so as to identify itself with the British officials. This led to
a change in the pattern of demand. Indigenous goods went out of
fashion and the demand for European commodities got a fillip.
Besides, there was a loss of demand resulting from the disappearance
of princely courts and nobility. Thus, the British rule, silently but surely,
alienated the Indians not only from Indian culture but also sdiverted in
its favour their form and pattern of demand for goods
9
3.3 Indian Population an Overview:-India is one of the most populated countries in the world, next only to
China. Although India occupies only 2.4% of the total area of the world it
supports over 15% of the world population, as revealed by statistics. India is
land of diversity, spread across its cultures, landscape, languages and
religion. India has been invaded from the Iranian plateau, Central Asia,
Arabia, Afghanistan, and the West. The Indian people have absorbed these
influences producing a remarkable racial and cultural synthesis. Religion,
caste, and language are major determinants of social and political
organization in India today. The government has recognized 16 languages as
official; Hindi is the most widely spoken.
Although Hinduism is the popular religion, comprising 83% of the
population, India is also home to one of the largest population of Muslims in
the world--- more than 120 million. The population also includes Christians,
Sikhs, Jains, Buddhists, and Parsis. The caste system reflects Indian
historical occupation and religiously defined hierarchies. Traditionally, there
are four castes identified, plus a category of outcastes, earlier called
"untouchables" but now commonly referred to as "dalits," the oppressed. In
reality, however, there are thousands of sub-castes and it is with these sub-
castes that the majority of Hindus identify. Despite economic modernization
and laws countering discrimination against the lower end of the class
structure, the caste system remains an important factor in Indian society.
Poverty is one of the major problems facing India. An estimated 30-40 percent
of the population lives in poverty. Four out of five of India's poor live in rural
areas. About 70% of the people live in more than 6 600,000 villages, and the
remainder in more than 200 towns and cities.
Statistics: Population in India
10
Year Rural
population
in million
Urban
population
in urban
Total
population
In million
Rural
population
%
Urban
population
%
1951
1961
1971
1981
1991
2001
2011
295
360
439
508
621
742
877
62
79
109
160
215
285
358
357
439
548
668
836
1027
1230
82.6
82.00
80.10
76.00
74.30
72.20
70.80
17.40
18.00
19.90
24.00
25.70
27.80
30.40
4.0Natural Resources In Process Of Economic Development In Rural India:
To achieve the development in national output, it is essential to
combine natural resources, human resources & capital. The existence or the
absence of favourable natural resources can facilitate or retard the process of
economic development. Natural resources include land, water resources,
fisheries, mineral resources, forests, marine resources, climate, rainfall and
topography.
1. Land Resources: The total geographical area of India is about 329
million hectares, but statistical information regarding land classification
is available for only about 305 million hectares; this information is
based partly on village papers and partly on estimates. We can explain
land utilization pattern from the following table:-
Land utilization pattern (million hectares)
11
Particulars Area Percent
1. Total geographical area 329 --
2. Total reporting area 305 100
3. Barren land not available for cultivation 41 13
4. Area under forests 67 22
5. Permanent pastures and grazing land 12 4
6. Culturable waste lands, etc. 19 6
7. Fallow lands 26 9
8. Net area sown 140 46
9. Area sown more than once 37 12
10. Total cropped area (8+9) 177 58
2. Forest Resources: Forest are an important natural resource of India.
They have a moderating influence against floods and thus they protect
the soil against erosion. They provide raw materials to a number of
important industries, namely, furniture, matches, paper, rayon,
construction, tanning, etc. The total area under forests was 67 million
hectares in 1986-87 which was about 22 percent of the total
geographical area, a recent estimate has put it at 75 million hectares or
23 percent of the total geographical area. Forests in India are mostly
owned by states (95%); a small portion is under the ownership of
corporate bodies and private individuals.
3. Water Resources: India is one of the wettest countries in the world,
with average annual rainfall of 1100 m.m. India’s water policy, since
Independence, has mainly concentrated on highly visible large dams,
12
reservoirs and canal systems, but has ignored minor water works such
as tanks, dugwells and tubewells.
4. Fisheries: Broadly speaking, fishery resources of India are either inland
or marine. The principal rivers and their tributaries, canals, ponds,
lakes, reservoirs comprise the inland fisheries. The rivers extend over
about 17,000 miles, and other subsidiary water channels comprise
70,000 miles. The marine resources comprise the two wide arms of
the Indian Ocean and a large number of gulf and bays along the coast.
About 1.8 million fishermen draw their livelihood from fisheries, though
they generally live on the verge of extreme poverty. Out of a total
catch of 3 million tones of fish in 1988-89, over 1 million tones came
from inland fisheries and nearly 2 million tones from marine sources.
India is the seventh largest producer of fish in the world and is second
in inland fish production, which contributes 45 per cent of total
production in the country. Fish production reached the level of 5.4
million tonnes in 2000-01, comprising 3.0 million tonnes of marine
fishery and 2.4 million tonnes of inland fishery and is expected to reach
5.6 million tonnes in 2011-12 with 3.0 million tonnes of marine fishery
and 2.6 million tonnes of inland fishery, respectively. During 2009-
2011, the export of marine products came down to US$ 1,038 million
from US$ 1,208 million during 2009-2011
4.1 Infrastructure In Process Of Economic Development In Rural India:The prosperity of a Rural India depends directly upon the development
of agriculture and industry. Agricultural production, however, requires power,
13
credit, transport facilities, etc. Industrial production requires not only
machinery & equipment but also skilled man-power, management, energy,
banking facilities, marketing facilities, transport services which include
railways, roads, shipping, communication facilities, etc. All these facilities and
services constitute collectively the infrastructure of an economy and the
development and expansion of these facilities are an essential pre-condition
for increasing agricultural & industrial production in a rural area.
Types of Infrastructural facilities—often referred towards economic and social development of rural India:
1. Energy: The most important single factor which can act constraint on
economic growth of a country is the availability of energy. There is a
direct correlation between the degree of economic growth, the size of
per capita income and per capita consumption of energy. Since energy
is an essential input of all productive economic activity, the process of
economic development inevitably demands increasing higher levels of
energy consumption. There are broadly two sources of energy
commercial energy & non-commercial energy. Following are the
various commercial energy:- coal & lignite, Oil & gas, Hydro-electric
resource, Uranium. & non-commercial energy are Fuelwood,
Agricultural wastes, Animal dung.
2. Power: Electric power, which is one form of energy, is an essential
ingredient of economic development and, it is required for commercial
and non-commercial uses. Commercial uses of power refer to the use
of electric power in industries, agriculture and transport. Non-
commercial uses include electric power required for domestic lighting,
cooking, use of mechanical gadgets like the refrigerators, air
conditioners, etc. With the growth of population and with the increase
in the use of modern gadgets in daily life, it is quite natural that the
demand for electricity for domestic use should grow at a fast rate.
14
3. Transport: If agriculture and industry are regarded as the body and the
bones of the economy, which help the circulation of men and materials.
The transport system helps to broaden the market for goods and by
doing so, it makes possible large-scale production through division of
labour. It is also essential for the movement of raw materials, fuel,
machinery etc., to the places of production. The more extensive and
continuous the production in any branch of activity the greater will be
the need for transport facilities. Transport development helps to open
up remote regions and resources for production. Regions may have
abundant agricultural, forest and mineral resources but they cannot be
developed if they continue to be remote and inaccessible.
Modes of transport & communication facilities: 1. Indian Railways: The most important form of transport system in
India is the Indian railways, which is also the country’s largest single
undertaking with a capital investment of around Rs. 15,000 crores. In
1950-51, railway route length was 53,600 kms but by 1990-91 it had
increased to nearly 62,400 kms-an increase at the rate of 0.4 percent
per annum.
2. Roads & Road Transport: Road transport plays an important role in
rural economy of country, since it is most suitable for short distances. It
has also the advantage of door-to-door service, flexibility, speed and
reliability. The utility of other modes of transport such as railways,
internal waterways, ports, etc. increase when linked to the road
transport system. Road construction and maintenance generate
sizeable employment opportunities—factor of great importance in the
context of growing population and growing unemployment in the
country. The rural road network now connects about 70 percent of our
villages.
3. Inland water transport: Inland water transport is the cheapest
mode of transport, for both long and short distances, so far as the
15
points of origin and destination of traffic are concerned. It is cheap as
energy consumption is low. India has over 14,500 kms. Of navigable
inland waterways comprising a variety of river systems, canals,
backwaters, creeks, etc.
1. Communications: The communication system comprises posts and
telegraphs, telecommunication system, broad casting, television and
information services. By providing necessary information about the
markets and also supplying necessary motivation, the communication
system helps to bring buyers and sellers together effectively and helps
to accelerate the growth of the economy.
Definition: “A country which has good potential prospects for using more capital or
more labour or more available natural resources, or all of these, to support its
present population on a higher level of living or if its per capita income level is
already fairly high, to support a large population on a not lower level of living.”
As per this definitions the problem of development is mainly the problem of
development is mainly the problem of poverty and prosperity. The basic
criterion then becomes whether the country has good potential prospects of
raising per capita income, or of maintaining an existing high level of per capita
income for an increased population.”
2.1 Basic Characteristics Of The Indian Economy As An Underdeveloped Economy:
India is an underdeveloped economy. Its is a vast country having an
area of 3.3 million sq. km. It has almost 6,40,000 villages. The population of
India is widely scattered over villages and towns. Nearly 72.2% of the
population lives in rural & 27.8% of the population lives in semi urban areas,
while the rest lives in towns. There is doubt that the bulk of its population
lives in conditions of misery. Poverty is not only acute but is also a chronic
malady in India. At the same time, there exist unutilized natural resources. It
is, therefore, quite important to understand the basic characteristics of the
16
Indian economy, treating it as one of the underdeveloped but developing
economies of the world.
1. Low per capita income:- Underdeveloped economies are marked by
the existence of low per capita income. The per capita income of an
India is lowest in the world. The per capita income in Switzerland in
1989 was about 88 times, in West Germany about 60 times, in U.S.A.
61 times and in Japan 70 times of the per capita income in India. It is
also important that developed economies are growing at a faster rate
than the Indian economy and as a consequence, the disparity in the
levels of income has become wider during period 1960-89.
2. Occupational pattern:- Primary producing. One of the basic
characteristics of an underdeveloped economy is that it is primary
producing. A very high proportion of working population is engaged in
agriculture, which contributes a very large share in the national income.
In India, in 1981, about 71 per cent of the working population was
engaged in agriculture and its contribution to national income was 36
per cent. In Asia, Africa and Middle East countries countries from two-
thirds to more than four-fifths of the population earn their livelihood
from agriculture, and in most Latin American countries from two-thirds
to three-fourths of population engaged in agriculture in developed
countries is much less than the proportion of population engaged in
agriculture in underdeveloped countries.
3. Heavy Population pressure:- The main problem in India is the high
level of birth rates coupled with a falling level of death rates. The rate of
growth of population which was about 1.31 per cent per annum during
1951-60 has risen to 2.11 per cent during 2001-11. The chief cause of
this rapid spurt to population growth is the steep fall in death rate from
49 per thousand during 1961-70 to 9.6 per thousand in 2010; as
compared to this, the birth rate has declined from about 49 per
thousand during 1961-70 to 29.9 per thousand in 2010. The fast rate
of growth of population necessitates a higher rate of economic growth
in order to maintain the same standard of living of the population. To
17
maintain a rapidly growing population, the requirements of food,
clothing, shelter, medicine, schooling, etc. all rise. Thus, a rising
population imposes greater economic burdens and, consequently,
society has to make a much greater effort to initiate the process of
growth.
4. Prevalence of chronic unemployment and underemployment: In
India labour is an abundant factor and, consequently, it is very difficult
to provide gainful employment to the entire working population. In
developed countries, unemployment is of a cyclical nature and occurs
due to lack of effective demand. In India unemployment is structural
and is the result of a deficiency of capital. The Indian economy does
not find sufficient capital to expand its industries to such an capacity
that the entire labour force is absorbed.
5. Low rate of capital formation: Another basic characteristic of the
Indian economy is the existence of capital deficiency which is reflected
in two ways— first, the amount of capital per head available is low; and
secondly, the current rate of capital formation is also low. Following
table reveals that gross capital formation in India is less than that of
developed countries.
18
Gross Domestic Investment and Saving (As per cent of Gross Domestic Product)
Gross Domestic Gross Domestic
Investment Saving
1986 2010 1986 2010
Japan 28 33 30 34
Australia 26 26 23 23
Germany 23 22 23 27
U.S.A. 12 15 12 13
U.K. 13 21 12 18
India 17 24 15 21
As per Colin Clark to maintain the same level of living a country requires an
additional investment of 4 percent per annum if its population increases at the
rate of 1 percent per annum. In a country like India where the rate of
population growth is 2.11 percent (during 2001-11), about 8 percent
investment is needed to offset the additional burdens imposed by a rising
population. Thus, India required as high as 14 percent level of gross capital
formation in order that it may cover depreciation and maintain same level of
living. A still higher rate of gross capital formation alone can give a way for
economic growth to improve living standard of the population.
19
OBJECTIVE OF STUDY
20
Objective:
o To revise the financial capability of the lending agencies in rural areas
to analysis the drawbacks & advantage of flow of credit in rural areas.
o The rural credit system should be strengthen
o To study the role of rural finance in Indian Economy.
o To understand the environment of the rural area
o To know sources of finance
o To know the need of finance
21
SCOPE OF STUDY
22
Scope of the study:
The Rural finance has immense potential to be reviewed for the betterment of
rural area in the competitive world. The issue of rural finance administration
also have major contribution to the upcoming researcher and scholars in this
field. The Rural population can use it as a tool box and guideline to chalk out
the future strategies regarding optimum utilization of scare resources.
The purpose and objective of the study is to analyze need of finance to rural
area. Scope of the study means the area of the study to which this project is
limited. In other words, Scope means the length and breadth of the study.
a) Productive loans are required for purpose of seeds ,fertilizers,
pesticides, payment of wages ,digging of wells ,making permanent
improvement on land etc.
b) Consumption :The farmers require money for running the
family ,between marketing of agriculture produce and harvesting of
next crop.In case of floods /drought situation ,the crop is damaged and
farmer are forced to avail loan facilities from village money lenders.
c) Unproductive product include money required for
litigation ,performance of marriage , birth/death of family member and
festivals.
23
RESEARCH METHODOLOGY
24
Research Methodology:
Secondary Data: Assigned project task is completed by going through
various books, committee reports regarding Indian agriculture & non-farming
sector, also role of various financial institutions in this grassland.
The project report entitled here is purely study project and does not include
any predictions or forecast regarding the future trends in the rural sector. The
project is based on various references taken from book & reports mentioned
in the bibliography at the end of the assign project.
25
DATA ANALYSISAND
INTERPRETATION
26
5.0 Microfinance In An Indian Context:-
To overcome the constraints and the high cost of reaching the rural
poor through banking sevices ,NABARD has pioneered the concept of thrift
and saving groups ,commonly known as SHGs .Both government and non
government agencies promote the formation of SHGs. Microfinance
institutions (MFIs), specialised financial institutions that serve the poor, derive
from the success of some micro enterprise credit programmes performed
mainly by practitioners in developing countries. microFinance (MF) is being
practiced as a tool to attack poverty the world over. During the last two
decades, substantial work has been done in developing and experimenting
with different concepts and approaches to reach financial services to the poor,
thanks mainly to the initiatives of the Non-Governmental Organisations
(NGOs) and banks in various parts of the country.
Despite having a wide network of rural bank branches in the country
and implementation of many credit linked poverty alleviation programmes, a
large number of the very poor continue to remain outside the fold of the formal
banking system. Various studies suggested that the existing policies, systems
and procedures and the savings and loan products often did not meet the
needs of the hardcore and asset less poor. Experiences of many anti-poverty
and other welfare programmes of the state as well as of international
organisations have also shown that the key to success lies in the evolution
and participation of community based organizations at the grassroots level.
27
Sorces :NABARD Report,2009-2010
Agency –wise distribution of SHGs financed up to 31st march 2010
SHGs Bank loan
Agency Number percentageAmount
Rs.in million
percentage
Commercial
Bank
3,61,061 50 1,150 56
RRBs 277,340 39 727 36
Cooperatives 78959 11 172 8
5.1 Micro-finance and Poverty Alleviation:
Most poor people manage to mobilize resources to develop their
enterprises and their dwellings slowly over time. Financial services could
enable the poor to leverage their initiative, accelerating the process of building
incomes, assets and economic security. However, conventional finance
institutions seldom lend down-market to serve the needs of low-income
families and women-headed households. They are very often denied access
to credit for any purpose, making the discussion of the level of interest rate
and other terms of finance irrelevant. Therefore the fundamental problem is
not so much of unaffordable terms of loan as the lack of access to credit itself.
The lack of access to credit for the poor is attributable to practical
difficulties arising from the discrepancy between the mode of operation
followed by financial institutions and the economic characteristics and
financing needs of low-income households. For example, commercial lending
28
institutions require that borrowers have a stable source of income out of which
principal and interest can be paid back according to the agreed terms.
However, the income of many self employed households is not stable,
regardless of its size. A large number of small loans are needed to serve the
poor, but lenders prefer dealing with large loans in small numbers to minimize
administration costs. They also look for collateral with a clear title - which
many low-income households do not have. In addition bankers tend to
consider low income households a bad risk imposing exceedingly high
information monitoring costs on operation.
In other words, although microfinance offers a promising institutional
structure to provide access to credit to the poor, the scale problem needs to
be resolved so that it can reach the vast majority of potential customers who
demand access to credit at market rates. To be successful, financial
intermediaries that provide services and generate domestic resources must
have the capacity to meet high performance standards. They must achieve
excellent repayments and provide access to clients. And they must build
toward operating and financial self-sufficiency and expanding client reach. In
order to do so, microfinance institutions need to find ways to cut down on their
administrative costs and also to broaden their resource base. Cost reductions
can be achieved through simplified and decentralized loan application,
approval and collection processes, for instance, through group loans which
give borrowers responsibilities for much of the loan application process, allow
the loan officers to handle many more clients and hence reduce costs.
Savings facilities make large scale lending operations possible. On the
other hand, studies also show that the poor operating in the informal sector do
save, although not in financial assets, and hence value access to client-
friendly savings service at least as much access to credit. Savings
mobilization also makes financial instituttions accontable to local
shareholders. Therefore, adequate savings facilities both serve the demand
for financial services by the customers and fulfill an important requirement of
financial sustainability to the lenders. Microfinance institutions can either
provide savings services directly through deposit taking or make
29
arrangements with other financial institutions to provide savings facilities to
tap small savings in a flexible manner.
Convenience of location, positive real rate of return, liquidity, and
security of savings are essential ingredients of successful savings
mobilization. Once microfinance institutions are engaged in deposit taking in
order to mobilize household savings, they become financial intermediaries.
Consequently, prudential financial regulations become necessary to ensure
the solvency and financial soundness of the institution and to protect the
depositors.
Governments should provide an enabling legal and regulatory
framework which encourages the development of a range of institutions and
allows them to operate as recognized financial intermediaries subject to
simple supervisory and reporting requirements.
One way of expanding the successful operation of microfinance
institutions in the informal sector is through strengthened linkages with their
formal sector counterparts. A mutually beneficial partnership should be based
on comparative strengths of each sectors. Informal sector microfinance
institutions have comparative advantage in terms of small transaction costs
achieved through adaptability and flexibility of operations. They are better
equipped to deal with credit assessment of the urban poor and hence to
absorb the transaction costs associated with loan processing. On the other
hand, formal sector institutions have access to broader resource-base and
high leverage through deposit mobilization.
Therefore, formal sector finance institutions could form a joint venture
with informal sector institutions in which the former provide funds in the form
of equity and the later extends savings and loan facilities to the urban poor.
Another form of partnership can involve the formal sector institutions
refinancing loans made by the informal sector lenders. Under these settings,
the informal sector institutions are able to tap additional resources as well as
having an incentive to exercise greater financial discipline in their
management. Microfinance institutions could also serve as intermediaries
30
between borrowers and the formal financial sector and on-lend funds backed
by a public sector guarantee.
Weaknesses of Existing Microfinance Models
One of the most successful models discussed around the world is the
Grameen type. The bank has successfully served the rural poor in
Bangladesh with no physical collateral relying on group responsibility to
replace the collateral requirements. The brief idea about Grameen is given in
the next part of this report. This model, however, has some weaknesses. It
involves too much of external subsidy which is not replicable Grameen bank
has not oriented itself towards mobilizing peoples' resources. The repayment
system of 50 weekly equal installments is not practical because poor do not
have a stable job and have to migrate to other places for jobs. If the
communities are agrarian during lean seasons it becomes impossible for them
to repay the loan. Pressure for high repayment drives members to money
lenders. Credit alone cannot alleviate poverty and the Grameen model is
based only on credit. Micro-finance is time taking process. Haste can lead to
wrong selection of activities and beneficiaries.
Another model is Kerala model (Shreyas). The rules make it difficult to
give adequate credit {only 40-50 percent of amount available for lending). In
Nari Nidhi/Pradan system perhaps not reaching the very poor. Most of the
existing microfinance institutions are facing problems regarding skilled labour
which is not available for local level accounting. Drop out of trained staff is
very high. One alternative is automation which is not looked at as yet. Most of
the models do not lend for agriculture. Agriculture lending has not been
experimented.
Risk Management : yield risk and price risk
Insurance & Commodity Future Exchange could be explored
31
All the models lack in appropriate legal and financial structure. There is
a need to have a sub-group to brainstorm on statutory structure/ ownership
control/ management/ taxation aspects/ financial sector prudential norms. A
forum/ network of micro-financier (self regulating organization) is desired.
6.0 Rural Market Contribution In Total Indian Economy:
When you consider a rural market then the measure part of the rural buiness
directly or indirectly connected with agriculture. In this condition,whenever you
study about rural market you have to consider the impact of agriculture
towards Indian Economy.
6.1 Profile of Rural people:-If we classify the rural people by their
occupation, we find cultivators as the predominant occupation group who
account 72% of rural households.
Distribution of rural households by their profession or business activity
Occupation Percentage of Households
Cultivators 72
Agricultural labourers 15
Other non-cultivators 11
Artisans 2
All house holds 100
However this group of cultivators contain both prosperous and well as
marginal cultivators within itself. This is rural India’s picture where 20% of
rural households (mostly cultivators) control about 66% of assets in rural
India. In this way rural population broadly divided into 6 categories:
32
1. Proprietors of land includes feudal tribute gatherers like zamindars, rich moneylenders and traders who acquire large tracts of land and companies or persons who own large populations.
2. Rich farmers who belong to dominant caste of the area.
3. Small peasants or marginal farmers owning uneconomic land holdings.
4. Tenant farmers operating on rented lands belonging to large land holders and working on small uneconomic land holdings.
5. Agricultural labourers who work on lands of landlords and rich farmers.
6. Artisans and others, which include the unemployed also.
6.2 Statistical Profile of The Rural Business in India
TABLE: VILLAGE & SMALL INDUSTRIES (Production)
Industry Unit # <-------------------- Production --------------->
1981-86 1986-91 1991-96 1996-01 2001-06 2006-11
Traditional Industries:
Khadi M.Sq.Mtres 56.00 82.00 103.98 108.58 1088.8 1052.63
Value (Rs. crores) 33.00 92.00 157.62 186.30 285.95 353.49
Village Value 122.00 348.00 807.06 900.38 1994.06 356216
Industries (Rs. crores)
Handlooms Mill Meters 2100.00 2900.00 3600.00 3692.00 4888 7020
Value (Rs. crores) 840.00 1740.00 2880.00 2953.60 3633
Sericulture Lakh Kgs. of raw 29.00 48.00 76.70 78.97 12836 13909
Silk
(value Rs.crores) 63.00 131.00 345.69 310.14 868
33
Handicrafts Value 1065.00 2050.00 3500.00 3800.00 11325 25200
(Rs. crores)
Coir Lakh tonnes of 1.50 1.85 1.49 1.83 2.11 2.63
Fibre
Value(Rs. crores) 60.00 86.00 100.50 139.51 161.00
Sub-total (A) Value (Rs. crores) 21.83 4447.00 7790.87 8289.93 16272.95 25553.489
Modern Industries:
Small Scale Industries
Value (Rs. crores) 7200.00 21635.00 50520.00 61228.00 155340 219968
Powerlooms Mill Meters 2400.00 3450.00 4930.00 5886** 10988 17201
Value (Rs. crores) 1980.00 3250.00 6423.00 7668.51 12337
Sub-total (B) Value (Rs. crores) 9180.00 24885.00 56943.00 64768.51 167677 219968
Total (VSI) (Rs. crores) 11353.00 29332.00 64733.87 73058.44 183949.95 245521.48
TABLE: VILLAGE & SMALL INDUSTRIES (Employment)
Industry Unit # <-------------- Employment (Lakh persons) -------->
1981-86 1986-91 1991-96 1996-01 2001-06 2006-11
Traditional Industries:
Khadi M.Sq.Mtres 8.84 11.20 13.05 15.00 14.15
Value (Rs. crores) N.A.
34
Village Value 9.27 16.13 24.84 25.50 34.42
Industries (Rs. crores)
Handlooms Mill Meters 52.40 61.50 76.80 73.70 96.87 128.00
Value(Rs. crores)
Sericulture Lakh Kgs. of raw 12.00 16.00 20.43 53.60 52.00 59.50
silk
(value Rs.crores)
Handicrafts Value 15.00 20.30 27.40 28.00 43.84 65.50
(Rs. crores)
Coir Lakh tonnes of 5.00 5.59 5.89 8.00 5.46
fibre N.A.
Value (Rs. crores)
Sub-total (A) Value (Rs. crores) 102.21 130.72 168.41 203.80 246.74 253.00
Modern Industries: 39.65 67.00 90.00 96.00 124.3 152.61
Small Scale Industries
Value (Rs. crores)
Powerlooms Mill Meters 10.00 11.00 32.19 35.32 55.00 N.A.
Value (Rs. crores)
35
6.3 Agricultural Impact on National Economy:
Agriculture is a backbone of the Indian Economy. It is important to note that
importance is given to industrialization in last four decades, agriculture is
largest industry in the country.
6.4 Agricultural Production :
The agricultural sector as a whole is estimated to
record a real growth rate of 6.6 per cent during 2007-
08. The overall growth in agricultural production
during 2008-09 has been provisionally estimated at
6.8 per cent, as against a negative growth rate of (-)
5.4 per cent during 2009-10. In spite of the damage caused to the cotton crop
in Punjab by excessive rains and unexpected cyclonic storms in Andhra
Pradesh in October 2010, cotton production was estimated to be higher at
13.3 million bales in 2010-11, as against 11.1 million bales produced in 2008-
09. Similarly, the sugarcane output is expected to touch 282.7 million tonnes
during 2010-11, compared to 276.3 million tonnes during 2007-08. The
production of oilseeds is also likely to be higher at 25.3 million tonnes during
2010-11, as against 22.0 million tonnes during 2009-10.
Foodgrains Production
The production of kharif foodgrains estimated at
102.5 million tonnes during 2009 showed a marginal
growth of 1.4 per cent over the production achieved
(101.1 million tonnes) in 2009. The rabi foodgrains
36
production for 2010-11 is expected to go up to 98.4 million tonnes compared
to 91.3 million tonnes in 2009-10. The foodgrains production is estimated to
be 200.9 million tonnes in 2010-11 compared to 192.4 million tonnes during
2009-10, recording an impressive increase by 4.4 per cent (Advance
Estimates). During 2010-11, efforts have also been initiated by various
government agencies to double the food production in the next decade.
During 2010-11 rice production is estimated to increase to 84.5 million tonnes
from 82.3 million tonnes produced in 2009-10, while the wheat production
during 2010-11 is estimated at 70.6 million tonnes, compared to the previous
year's level of 65.9 million tonnes, an increase by 7.1 per cent. Production of
pulses in 2009-10 is expected to be around 15.2 million tonnes, as against
13.1 million tonnes during 2010-11.
Agricultural Production-Major crops (in million tonnes)
Year 2006-07 2007-08 2008-09 2009-11
Crops Achiev-ement
Target Achievement
% change over
1995-96
Target Achiev-ement
% change over
1996-97
Target
Produ-ction
(Adv. Est.)
% change over
1997-98
Rice
77.0 81.0 81.7 6.1 83.0 82.3 0.7 84.2 84.5 2.7
Wheat
62.1 65.0 69.4 11.8 68.5 65.9 (-) 5.0 70.0 70.6 7.1
Coarse Cereals
29.0 29.0
32.5
34.1 17.6 33.5 31.1 (-) 8.8 34.3 30.6
Pulses
12.3 15.0 14.2 15.4 15.0 13.1 (-) 7.7 15.5 15.2 16.0
Total Foodgr-ains
180.4 193.5 199.4 10.5 200.0 192.4 (- 3.5 204.0 200.9 4.4
Oilseeds
22.1 23.0 24.4 10.4 25.5 22.0 (-) 9.8 27.0 25.3 15.0
Sugarca-ne 281.1 270.0 277.6 (-) 1.2 280.0 276.3 (-) 10.5 300.0 282.7 2.3
37
Cotton* 12.9 13.0 14.2 10.0 14.8 11.1 (-) 21.8 14.8 13.3 19.8
* Million bales of 170 kg. each.
Agricultural Exports and Imports:
The share of exports of agriculture and allied products in the total
exports had declined marginally, from 18.9 per cent during 2009-10 to 17.8
per cent during 2010-11. During the same period, the value of exports of
agriculture and allied products amounted to US$ 5,994 million, showing a
decline of 9.6 per cent from a level of US$ 6,634 million in 1997-98. Major
items of agricultural exports were basmati and non-basmati rice, raw cotton,
meat, oilmeals, tea, coffee, unmanufactured tobacco, cashew, spices, fresh
and processed fruits and juices, vegetables and marine products, etc.
Agricultural imports related to food and other items constituted 5.8 per
cent of the total imports during 2010-11, as against 4.0 per cent during
corresponding period of the previous year. Important agricultural items
imported during the year were vegetable oils (edible), sugar, wheat and fruits
& nuts. During 2010-11, the volume of agricultural imports aggregated US$
2,409 million, as against US$ 1,678 million during the corresponding period of
the previous year, recording a growth of 43.6 per cent.
Agricultural markets:
There were 7,062 agricultural regulated markets operating in India, 162
agricultural commodities considered for grading standards and 3,253 cold
storage with capacity of 8.73 million tonnes as on end March 2010. With the
38
introduction of economic reforms, futures trading was permitted in coffee,
cotton, castor oil and jute goods during 2010-11. Earlier futures trading were
permitted in gur, potato, castor seed, pepper, turmeric, etc. Further, during
2010-11, futures trading was introduced in oilseeds, oil cakes and edible oils.
A network of co-operatives at the national, state and primary level operates to
help farm producers with access and further reach for sale of produce. As per
the Annual Report (2010-11) of Ministry of Agriculture, Government of India,
the value of agricultural produce marketed through co-operatives has
registered a remarkable growth of 21.6 per cent, from Rs.9,500 crore in 2005-
10 to about Rs.11,551 crore in 2010-11.
6.5 Agriculture role in Indian Economy:
Agriculture for Industrial Development:
Indian agriculture has been the source of supply of raw materials to our
leading industries. Cotton and jute, textiles, sugar, plantations— all these
directly depend on agricultural output. There are many industries, which
depend on agriculture indirectly. Many of our small scale and cottage
industries like handlooms, oil crushing, etc depend on agriculture for their raw
materials.
But then, in recent years, agriculture is losing its significance to
industries such as iron and steel, engineering, chemicals, etc. However in
recent years, the importance of food processing industries is being increasing
recognized both for generation of income and generation of employment.
Agriculture in economic planning:
Importance of agriculture in the national economy is indicated by many
facts. For example, agriculture is main support for transport sector as
railways and roadways secure bulk of their business from the movement of
agricultural goods. Further it is seen that good crops implying large
purchasing power with the farmers lead to greater demand for manufactures
and therefore better prices. In other words prosperity of farmers is also the
39
prosperity of the industries and vice-versa. Agriculture is backbone of the
Indian economy and the prosperity of agriculture can also stand for the
prosperity of the economy. At the same time it is true that per capita
productivity in agriculture is less than in the industry. Many scholars think that
so long as the Indian Economy is dominated by agricultural activity, per
capita income will not rise to an extent, which is necessary and desirable.
6.6 Capital Formation in Agriculture:
The Gross Capital Formation in agriculture, at 1993-94 prices, increased from
Rs.18,214 crore in 1994-95 to Rs.20,995 crore in 1997-98. The share of
private sector investment in agriculture has been registering an increasing
trend over the last four years. It increased from Rs.13,244 crore in 1994-95 to
Rs.15,555 crore in 1996-97 and further to Rs.16,579 crore in 1997-98. The
rising trend in the private investment in agriculture is attributable mainly to
accelerated flow of institutional credit. It is explain graphically as follows:
The public sector capital investment in agriculture which has been declining
from Rs. 4,970 crore in 1994-95 to Rs.4,776 crore in 1995-96 and further to
40
Rs.4,347 crore in 1996-97 showed an increase from Rs.4,347 crore in 1996-
97 to Rs.4,416 crore (at 1993-94 prices) in 1997-98.
7.0 Changing Scenario Of Rural Credit:
Indian rural credit structure is regarded all over the world as quite unique and
innovative. It required a careful feasibility study to understand rural structure.
Evolved over a period of last eight decades, it can perhaps claim the honour
of being a very important constituent of the most complex rural economy in
the third world countries. In India there is different caste, religion of people
living together, the language of every state, caste is different than each other.
The land, weather, water availability is different in different area, which give
lots of problem in applying various policies. One of the distinguishing features
has been its ability to adapt itself, without much turmoil and stress, to the
socio-economic dynamics of the rural scenario. Over the years it has
developed into a multi faceted structure to service almost the entire cross-
section of rural population spread thoughtout the length and breadth of our
country.
In rural areas the indigenous moneylenders continued to be the banker
in need. Since these money-lenders had virtual monopoly in supplying credit
in rural areas, the poor were often subjected to exploitation. With the
overriding monopoly the money-lenders often resorted to usurious practices---
levying the exobirant rate of interest, demanding gift/contribution to the temple
funds out of the amount of credit, demanding advance interest, etc. Besides,
often the money-lenders resorted to unethical practices like taking thumb
impression on a blank paper for inserting some arbitrary amount, manipulation
of account to inflate the balance due. The poor villager could not escape the
clutches of these indigenous bankers as they had to keep on borrowing from
41
them under distress since they were the only source of credit for all type of
requirements--- production and consumption. The conditions of the poor
peasantry were perpetually so pathetic that an adage—“they are born in debt,
they live in debt & die in debt” was the usual description of their plight.
To mitigate the sufferings of the poor farmers the infrastructure of co-
operative credit was brought into being in the matter of agricultural finance.
The Co-operatives Societies Act of 1904 provided the formation of primary
agricultural co-operatives credit societies. Later in 1912, the co-operative
movement was extended to formation of non-agricultural co-operative credit
societies also.
The commercial banks on the other hand were participating in rural
banking only as an alien since they were programmed for meeting the
financial requirements of trade and commerce. In a view of the huge gap in
rural credit from institutional sources and in a bid to meet the growing needs
of financial assistance to modernizing farming, the government adopted the
multi-agency approach. This was intended to increase the farm productivity
and thus raise the living standards of the poor farmers. The formation of
State Bank Of India which was formed my taking over the Imperial Bank of
India by the Government was with a objective of “extension of banking
facilities on a large scale more particularly in the rural and semi-urban areas
and for other diverse purposes.” This was an important milestone in the
banking of rural India. Momentum was gained more prominently after the
concept of “Social control” over commercial banks was propagated in 1967.
With the setting up of National Credit Council in 1968 to asses the demand for
bank credit for various sectors of economy and to determine priorities for the
grant of loans, etc. it came to be felt increasingly that banks should become
instruments of economic and social development.
To this effect nationalization of 14 major Indian commercial banks in
July 1969 can be described as a major landmark in the history of Indian
financial system and a big leap towards rural banking. With emphasis on
lending to priority sector—agriculture, rural artisans and handicrafts, small
scale industries, small business and retail trade and other weaker sections of
42
the society— rural banking came to the fore. The step was initiated to utilize
effectively the professional skills and acumen developed by the banking
system for achieving the basic objective of balanced socio-economic
development.
Both the Co-operative and Commercial banks made substantial
development in providing credit to agricultural and rural economy. The total
share of co-operatives in total borrowing of the rural household grew from
5,204 in july 2001 to 12,065 in Dec 2011. But still it was noticed that two-
thirds of the total credit was taken from non-institutional sources. The
demand for rural credit was on the increase owing to adoption of modern
agriculture, which increasingly required larger amounts of capital both short
term & long term.
7.1 Structure of Rural Credit In India
“In the village itself no form of credit organization will be suitable except the
Co-operative Society—Co-operation has failed, but co-operation must
succeed.”
--All-India Rural Credit Survey
National Policy & Its’s Aim:
Agricultural credit is one of the most crucial inputs in all agricultural
development programmes. From olden days private money-lenders are main
sources of credit towards agricultural or rural products. After independence
multi-agency approach consisting of co-operatives, commercial banks and
regional rural banks are adopted due to its cheaper and adequate credit to
farmers. The major policy in the sphere of agricultural credit has been its
progressive institutionalization for supplying agriculture and rural development
43
programmes with adequate and timely flow of credit to assist weaker sections
and less developed regions.
The basic aim of this Policy are as follows:-
a. To ensure timely & sufficient flow of credit to the farming sector;
b. To avoid money-lender chain from rural scene.
c. To reduce regional imbalance through their credit facilities.
d. To provide larger credit support to areas covered by special programmes.
e.g.
National Oilseeds Development Project.
7.2 Need of Credit for Farmers:-
Farmers need finance mainly for the following things—to pay current
expenses of cultivation such as the purchase of seed, manures, etc.; the
purchase of cattle, implements and raw materials; acquire new land; or
improve land by irrigation, drainage, wedding and planting; pay up old debts
to build and repair houses, to purchase food stuffs and other personal
necessaries; pay land revenue to the Government; meet expenses connected
with marriage and other social events in the family, but jewellery and conduct
law suits. The credit need of agriculturists can, therefore, be broadly divided
into directly productive & indirectly unproductive expenses. Unfortunately fact
is that underdeveloped and old countries are in need of both the types of
credit
8.0 Sources Of Rural Credit
44
There are mainly two sources available to the farmers private agencies
& institutional. Private agencies means relatives, landlords, agricultural
moneylenders, professional private moneylenders, traders & commission
agents, others. Where institutional agencies are a. commercial banks, b. the
state bank, c. co-operative societies & land mortgage banks d. agricultural
finance Corporation.
Private agencies giving 93% of the total credit requirements in 1951-52
and institutional sources including government giving for only 7% of the total
credit needs. But in 1960-61, the share of private agencies came down to
81.3 which was as follows:- Relatives 8.8%, Landlords 0.6%, Agricultural
moneylenders 36.0, Professional private moneylenders 13.2%, traders &
commission agents 8.8%, other sources 13.9. that time institutionals sources
were 18.7 and the break up was government 2.6%, Co-operative 15.5%,
Commercial banks 0.6%. As per the All India Debt and Investment Survey
(2011), estimated that the share of private agencies had further slumped to
about 39% & share of institutional credit jumped to 63% break up was 30% of
co-operative & 31% of commercial banks. Government & Reserve Bank of
India is supporting commercial bank & co-operatives to meet the growing
demand for agricultural credit.
9.0 Private Agencies Sources:
Money lenders: Though there are drawbacks, moneylenders are by far
the most important source of agricultural credit in India. That we have
already seen before, It is therefore, clear that the basic problem of the
agricultural economy of India is the huge indebtedness of farmers and
their exploitation by private moneylenders. For that government of India
make provisions in act as follows a. maintenance of accounts in prescribed
forms, b. furnishing of the receipts and periodical statements, c. fixing of
maximum rates of interest, d. Protection of the debtors from molestations
and intimidations, e. licensing of moneylenders, and f. penalties for
infringement of the provisions. The basic objectives of such legislative
enactments can be stated as: I. To bring about an improvement in the
terms on which private credit was available to agriculturists and to place
45
legal restrictions on the unreasonable exactions of moneylenders, II. To
enable civil courts to do greater justice as between lenders and borrowers
than was possible in the prevailing circumstances under the ordinary Code
of Civil Procedure.
Traders & commission agents: Traders & commsiion agents supply
funds to farmers for productive purposes much before the crops mature.
They force the farmers to sell their produce at low prices and they charge
a heavy commission for themselves.
Landlords & others: Farmers, predominantly small farmers & tenants,
depend upon landlords and others to meet their financial requirements.
This source of finance has all the defects associated with moneylenders,
traders and commission agents. Interests rates are exorbitant. Often the
small farmers are cheated and their lands are appropriated. What is
worse, this source of finance is becoming more important—from 3.3
percent in 1951-52 to 14.5 percent in 1998-99 but declined to 10.2 percent
in 2011.
10.0 Institutional sources of credit:
These are the funds made available by co-operative societies,
commercial banks, & regional rural banks & state governments also. The
need for institutional credit arises because of the weakness or inadequacy of
private agencies to supply credit to farmers. Private credit is defective
because:-
I. It is based on profit motive &, therefore, it is always exploitative.
II. It is very expensive and is not related to the productivity of land.
III. It does not flow into most desirable channels and to most needy
persons.
IV. It is not available for making agricultural improvements—and much of
the necessary improvements are not undertaken as funds are not
available for long periods at low rates of interest
46
V. It is not properly integrated with the agriculturists other needs.
Problems in Institutional sources:
The government was of the view that multi-agency approach to rural credit
was the real solution to the emancipation of small farmers from the clutches of
the money-lenders. But withing a short period, number of problems have
surfaced such as:
a) There was no coordination between different agencies operating in
the same area and, as a result, there was multiple financing, over-
financing in some areas and under-financing in others.
b) Despite the adoption of lead bank scheme and district credit plans,
the different agencies often failed to formulate and develop
meaningful agricultural credit programmes in given blocks and
districts.
c) Despite guidelines issued by RBI, different agencies adopted different
procedures and policies in the matter of providing loans and their
recover. The result was unnecessary competition among the different
agencies.
d) There were practical problems in the recovery of loans when different
agencies had lent to the same person against the same securities.
Ultimatlely, there were heavy overdues.
The major problem faced by lending institutions, particularly co-
operatives, is the most unsatisfactory level of overdues. The ration of
overdues to that of demand is around 40 to 42 percent in the case of co-
operatives and 47 percent in the case of Regional rural banks. Accordingly,
health of rural credit institutions, both co-operative and commercial banks, is
in a very sad state in several parts of the country.
1.Co-operative credit societies :10.1
47
It is the cheapest and the best source of rural credit. The rate of interest is
low. Since 1951, the co-operative credit movement has started helping the
farmers in a big manner. During 1989-90 there were about 88,000 primary
agricultural credit societies. The stranglehold of the moneylenders on
the peasants is not met by the co-operatives. Besides, the small farmers find
it difficult to meet all their credit requirements from the co-operatives.
Primary Agricultural Credit Society:
The co-operative movement was started in India largely with a view to
providing agriculturists funds for agricultural operations at low rates of interest
and protect them from the clutches of moneylenders. The organization of the
co-operative credit for short period may be briefly outlined as follows:
A co-operative credit society, commonly known as the primary
agricultural credit society (PACS) may be started with ten or more persons,
normaly belonging to a village. The value of each share is generally nominal
so as to enable even the poorest farmer to become a member. The members
have unlimited liability, that is each member is fully responsible for the entire
loss of the society in the event of failure. This will mean that all the members
should know each other intimately. The management of the society is under
an elected body consisting of President, Secretary & Treasurer. The
management is honorary, the only paid member being normally. Loans are
given for short periods, normally for one year, for carrying out agricultural
operations, and the rate of interest is low. Profits are not distributed as
dividend to shareholders but are used for the welfare of the village. In the
construction of a well, or maintenance of a school, and so on. The usefulness
of the primary credit societies has been rising steadily. In 1950-51, it
advanced loans worth Rs.23 crores; this rose to Rs. 275 crores in 1980-81,
and to Rs. 6500 crores in 2010-2011.
48
Financial Strength of PAC’s.: To make all primary agricultural societies
viable and ensure adequate and timely flow of co-operative credit to the rural
areas the Reverse Bank of India, in collaboration with State governments, had
been taking a series of steps to strengthen weak co-operative banks and to
correct regional imbalances in co-operatives development. Steps were taken
to reorganize viable PACs and for amalgamation of non-viable societies with
farmer’s service societies or large sized multipurpose societies. These efforts
are being intensified by providing larger funds to weak societies to write off
their losses, bad debts and overdues.
PAC’s and Weaker Sections: The major objective of the co-operative
development programmes is to ensure that the benefits of co-operative
activities flow increasingly to weaker sections including scheduled castes and
scheduled tribes. The government seeks to achieve this through expanding
the membership of the weaker sections in the existing PACs and ensuring
larger flow of funds and services to them. In the tribal areas, large sized
multipurpose societies are being organized mainly for the benefit of the tribals.
Co-operative Central Banks: These are federations of primary credit
societies in specified areas normally extending to the whole district meance
they are sometimes called as district co-operative banks. These banks have
a few private individuals as shareholders who provide both finance of
management. Their main task is to lend to village primary societies, but they
were expected to attract deposits from the general public. But the expectation
has not been fulfilled and many of the co-operative central banks act as
intermediaries between the State Co-operative Bank on the one hand and the
village primary credit societies on the other.
State Co-operative Bank: This bank forms the apex of the co-operative
credit structure in each state. It finances and controls the working of the
central co-operative banks in the State. It serves as a link between the
Reserve Bank of India from which it borrows and the co-operative central
banks and village primary societies. The State Co-operative Bank obtain its
working funds from its own share capital and reserves, deposits from the
general public and loans and advances from the Reserve Bank now NABARD
49
has formulated a scheme for the rehabilitation of weak central co-operative
banks. NABARD is providing liberal assistance to the State Governments for
contributing to the share capital of the weak central co-operative banks
selected for the purpose. The State Co-operative bank is not only interested
in helping the co-operative credit movement but also in promoting other co-
operative ventures and in extending the principles of co-operation.
Problem of overdues to Co-operative credit
A highly distressing fact of co-operative credit is the heavy overdues of
co-operative credit institutions, now estimated between Rs.9,000 crores to
Rs.10,000 crores. According to the RBI study team on overdues “lack of will
and discipline among cultivators to repay loans was the principal factor
responsible for the prevalence of overdues of co-operatives. Defective
lending policy pursued by co-operatives, the apathy of management in taking
quick action against recalcitrant members and absence of favourable climate
were other contributing factors.”
Apart from these commonly factors normally responsible for a high level
of overdues, intervention of external forces such as loan waivers, concession
in various forms towards repayment of principal and interest has also affected
the recovery performance of credit institutions to a significant extent. The
problem is further aggravated on the account of the state governments in
ability to meet the financial commitments to co-operative banks.
In recent years, the farmers are getting organized and one of their chief
demands of the farmer union is to cancel their debts to the co-operative
societies and banks. States have meekly surrender to such demands to write
off the debts in a matter of extreme concern, as it hampers the recovery of
dues from the farmers. The problem of loan overdues is a matter of serious
concern, as it affects the recycling of funds and credit expansion on one hand
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and economic viability of the lending institutions, specially the co-operatives
and RRBs, on the other.
2. Land development banks [10.2]: The need for long-term loan is being
satisfied by land development banks (formerly the were called land
mortgage banks). The objective of such banks is to provide long-term
credit to the cultivators against the mortgage of their lands. The loans
from the land development banks are quite cheap and are spread over a
long period of 15 to 20 years. It is, therefore, convenient ot borrow from
these banks if previous debts have to be cancelled or if additional land is
to be purchased or if improvements have to be made. Though land
development banks have been making considerable progress in recent
years in this country, they have not really contributed much to the
financial need of the farmers. Most farmer are not even aware about this
bank & 70% of the land development banks are located in the three
South Indian States of Tamil Nadu, Andhra Pradesh & Karnataka. The
loan sanction by this bank has been increase annually from Rs. 3 crores
to Rs. 1730 crores between 1970-71 and 2009-10. major drawback of
this bank is they lend against the security of land, and big landlords have
taken advantage of them and, by and large, small peasants have not
benefited from them.
The Structure of LDBs:- The long term credit structure consists of the
central land development banks (generally one for each State) and
primary land development banks. In some States, there are no primary
land developments banks but in their place, there are branches of central
land development banks.
Problems of LDBs:- Land development banking is yet to take strong
roots in India barring few States. However, LDBs have contributed in
large measure to agricultural development by lending specially for minor
irrigation. All their loans are for productive purposes benefiting mostly
the small farm holders. Though land development banking has made
51
considerable progress in recent years, it has not really contributed much
to the improvement of the financial position of the farmers. A large
number of factors are responsible for the relative ineffectiveness of
LDBs.
Overdues Problems:- mounting overdues in most of the LDBs have
crippled the structure badly, in recent years. Overdues at the level of
primary land development banks have been put between 42 to 44
percent. Overdues have caused innumerable financial problems besides
limiting the capacity of LDBs to lend and operate as viable units. The
financial discipline imposed on the banks in the matter of eligibility to
undertake fresh lending based on recovery performance has been the
main limiting factor quantitative growth of credit operations. To some
extent, the banks themselves are to be blamed for this predicament due
to faulty loaning policies, inadequate supervision, over-utilisation of
loans, ineffective measures for recovery etc. Which have contributed to
the deterioration in recovering the loans.
3. Commercial Banks [10.3]: The commercial banks in India have long
confined their operations to urban areas, receiving deposits from the
urban public and financing trade and industry in urban public and
financing trade and industry in urban areas. Commercial banks are
extending financial support to agriculture both directly and indirectly
Direct finance is extended for agricultural operations for short and
medium period. Indirect finance to farmers is made through providing
advances for the distribution of fertilizers, other inputs, etc, and also
through financing primary agricultural credit societies. Financing of
investment in agriculture is a major aspect of the farm credit activities of
banks Credit needs of service units providing services for warehousing,
processing, marketing, transporting, and repairing of tractors etc.
Direct Finance by Commercial Banks:- At the time of bank
nationalization, it was clearly conceded that the commercial banks did
not have the necessary experience or the personnel to deal with the
farmers directly. While the co-operative had been specializing in rural
52
credit since the beginning of the century. Even then the nationalized
banks were expected to go vigorously in the support of the farmers in
general and the small cultivators in particular. In the initial stages, for
obvious reasons the nationalized banks concentrated their attention on
large cultivators and other special category farmers such as those
engaged in raising high-yielding varieties of food-grains. At present short
term crop loans accounted for nearly 40 to 45% of the total loans
disbursed by the commercial banks to the farmers.
Term loans for varying periods for purchasing pump-sets,
tractors and other agricultural machinery, for construction of wells and
tube-wells, for the development of fruit and garden crops, or leveling and
development of land, etc. are provided. These term loans accounted for
about 35 to 37% of the total loans disbursed by commercial banks.
Finally, commercial banks extend loans for such activities such as
dairying, poultry farming, piggery, bee keeping, fisheries and others—
these loansaccount for 15 to16%. Region wise, southern region
accounts for the bulk of credit disbursed by commercial banks viz. 52%
of the total credit extended.
Indirect Finance by Copmmercial Banks: Even though the scope
for direct financing by commercial banks would be limited for some years
to come, there is a considerable scope for indirect financing by
commercial banks. For instance, commercial banks are financing co-
operative societies to enable them to expand their production credit to
the farmers. More especially they increasingly finance co-operatives
engaged in marketing and processing of agricultural produce or in the
activities ancillary to agriculture such as dairy farming, poultry farming,
etc. In this connection, the Stated Bank of India and its subsidiaries are
already playing an active role in financing co-operative marketing and
processing. Commercial banks are providing indirect finance for the
distribution of fertilizers and other inputs.
Commercial banks extend credit to manufacturing or distribution
firms and agencies and co-operatives engaged in the supply of pump-
53
sets and other agricultural machinery on the hire-purchase basis. They
finance the operations of the Food Corporation of India, the state
governments and others in the procurement, storage and distribution of
food grains.
Finally, commercial banks increasingly subscribe to the
debentures of the central land development banks and also extend
advances to the latter. This enables land development banks to expand
their medium and long-term advances to farmers for the purpose of land
improvement and land development.
Commercial Banks & Small Farmers: It has been estimated that
nearly 70 percent of farmers owning less than 2 hectares of land are not
getting bank credit; only large landowners have been found creditworthy
and suitable for banks advances. But such a situation cannot continue
for long. Under the direction of the Planning Commission, Small farmers
Development Agencies have been set up to identify small farmers and
work out economically viable schemes of agricultural development.
Commercial banks have to group them into various categories for credit
support so as to enable them to become viable cultivators. For instance,
in areas where the subsoil water table is high, the small cultivator has to
be helped by banks to convert his dry holding into wet holding. With
pump set loan, the cultivator can change the cropping pattern into double
or even multiple cropping activity. As regards small cultivators near
urban areas and with irrigation facilities, commercial banks can help
them to go in for poultry farming and maintaining one or two vegetable
cultivation or combine it with small milch cattle.
Problems of Commercial Banks in Agricultural Credit:- The credit
needs of the agricultural sector in the next few years are estimated to
rise to Rs.50,000 to Rs.60,000 crores. To meet the needs is an
enormous task, and responsibility will have to be borne by co-operatives
and commercial banks. As resources available to commercial banks in
the agricultural sector will naturally be limited, it is important that every
commercial bank attempts to make optimum use of its limited resources
54
in this sector. In the field of financing of agriculture, the problem is not
merely quantitative but also of coverage vis-à-vis the organization and
the personnel available to the nationalized banks. The majority of the
rural population consists of small farmers. Further, there are 5,50,000
villages spread throughout the country. To reach all of them with only
about 47,000 banking offices is, no doubt, a stupendous task. Even with
the completion of branch extension programmes of the commercial
banks now in hand or those which may be undertaken during the next 5
to 10 years, commercial bank may not be in a position to cover many of
the villages. Moreover in recent years, the rural branches of commercial
banks in general and branches of RRB in particular, have been under
severe financial strain on account of higher transaction cost involved in
handling of large number of small size loan accounts and somewhat
lower interest income as a result of concessional rate of interest on small
size loans.
The lower proportion of current deposits in total deposits of rural
branches has also placed them at a disadvantage with regards to cost of
resources. Finally, the presence of overdues, particularly after the
implementation of Agricultural and Rural Credit Debt Relief Schemes,
1990 has further adversely affected the viability of rural branches of
commercial banks.
Under these conditions, if the development of agriculture is not
to suffer for want of credit and if there has to be some improvement in
the lot of innumerable small farmers, new dimensions will have to be
given to schemes of financing agriculture.
4. Regional Rural Banks [10.4]: These banks were first set up in 1975
specifically to give direct loans and advances to small and marginal
farmers, agricultural labourers, rural artisans and other of small means.
The loans are given for productive purposes. There were 196 RRBs
which have been lending around Rs. 3600 crores annually by way of
loans to rural people. Over 90 percent of the loans of RPBs are given to
55
the weaker sections in rural areas. The regional banks, though basically
scheduled commercial banks, differ from the latter in certain respects:
The area of regional rural banks is limited to a specified region
comprising one or more districts of a State.
The regional rural banks grant direct loans and advances only to small
and marginal farmers, rural artisans and agricultural labourers and other
of small means for productive purposes.
The lending rates of the regional rural banks should not be higer than
the prevailing lending rates of co-operatives societies in any particular
State. The sponsoring banks and the Reserve Bank of India provide
many subsidies and concessions to RRBs to enable the latter to function
effectively
Concessions to RRBs: From the beginning, the sponsor banks have
continued to provide managerial and financial assistance to RRBs and
also other concessions such as lower rate of interest on the latter’s
borrowing from sponsor banks. Further, the cost of staff deputed to
RRBs and training expenses of RRB staff are borne by the sponsor
banks. The Reserve Bank of India has been granting many concessions
to RRBs.
Progress of RRBs: There are now 196 regional rural banks in 23
States with 14,500 branches. As at the end of September 2010 the
regional rural banks had advanced Rs.3,560 crores by way of short-term
crop loans, term loans for agricultural activities, for rural artisans, village
and cottage industries, retail trade and self employed, consumption loans
etc. Nearly 90 percent of the loans of RRBs, were provided to the
weaker sections. State wise Uttar Pradesh found large number of
offices.
Objectives of RRBs:
56
RRBs had followed instructions given by RBI and Government of
India regarding loan policies, procedures, etc.
The basic aim of setting up RRBs viz, developing the rural economy
by providing credit for the development of agriculture, trade, commerce
industry and other productive activities in rural areas, was being fulfilled
and
RRBs had successfully maintained their image as a small man’s bank
by confining their credit facilities to the target groups viz, small marginal
farmers, agricultural labourers, artisans and small enterprises for
productive activities.
The recovery position on the whole was not satisfactory.
Problems in functioning of RRBs:
a. On account of the many restrictions place on the business they can
undertake, RRBs have lowearning capacity.
b. The wage and salary scales of RRBs have been rising and, in fact,
with the recent award of a tribunal, their scales would approximate
those of commercial banks; with the increase in salary scales, an
important rationale for the setting up of RRBs has ceased to exist.
c. The sponsoring banks are also running their own rural branches in
the very area of operations of the RRBs; this has given rise to certain
anamolies and to avoidable expenditure on controls and
administration.
5. Reserve Bank of India [10.5]:
RBI had shown keen interest in agricultural credit and maintained a
separate department for this purpose. RBI extended short-term
seasonal credit as well as medium-term and long-term credit to
57
agriculture through State level co-operative banks and land
developments banks. RBI had also set up the Agricultural Refinance
Development Corporation (ARDC) to provide refinance support to the
banks to promote programmes of agricultural development, particularly
those requiring term credit. With the widening of the role of bank credit
from “agricultural development” to “rural development” the Government
propo9sed to have a more broad-based organization at the apex level
to extend support and give guidance to credit institutions in matter
relating to the formulation and implementation of rural development
programmes. A National Bank for Agriculture and Rural Development
(NABARD) or National Bank was, therefore, set up to take over the
agricultural credit functions of RBI on the on hand and the refinance
functions of ARDC on the other.
10.5.a N A B A R D: an Overview-
NABARD is an apex institution accredited with all matters
concerning policy, planning and operations in the field of credit for
agriculture and other economic activities in rural areas.
NABARD operates throughout the country through its Head Office
at Mumbai, 25 Regional Offices and on Sub-Office, located in the
capitals of all the states/union territories. It also has 4 training
establishments.
It is an apex refinancing agency for the institutions providing
investment and production credit for promoting the various
developmental activities in rural areas.
It takes measures towards institution building for improving
absorptive capacity of the credit delivery system, including
monitoring, formulation of rehabilitation schemes, restructuring of
credit institution, training of personnel, etc.
58
It co-ordinates the rural financing activities of all the institutions
engaged in developmental work at the field level and maintains
liaison with Government of India, State Governments, Reserve
Bank of India and other national level institutions concerned with
policy formulation.
It prepares, on annual basis, rural credit plans for all districts in the
country; these plans form the base for annual credit plans of all
rural financial institutions
o It undertakes monitoring and evaluation of projects refinanced
by it.
o It promotes research in the fields of rural banking, agriculture
and rural development.
11.0 Schemes & Facilities from the various banks
11.1 NABARD:-
RURAL NON-FARM SECTOR FINANCE SCHEME :
Rural Non Farm Sector (RNFS) holds the key to faster
economic development of the country. It has potential
and promise for generating employment and increased
income in the rural areas. Hence, NABARD has
identified financing, development and promotion of
RNFS as one of its thrust areas.
Schemes from NABARD for non-farming sector:
59
1. COMPOSITE LOAN SCHEME (CLS) - under ARF
Borrowers: Rural artisans, handicraftsmen, small entrepreneurs, groups of
individuals, partnership firms, co-operative societies, NGOs, etc.
Refinance ceiling :Maximum of Rs. 10 lakh per borrower.
Repayment period: -3 to 10 years with suitable need based moratorium not
exceeding 18 months.
Eligible activities :-All manufacturing, processing, and approved service
activities.
2. INTEGRATED LOAN SCHEME (ILS) - under ARF
Borrowers: Individuals, artisans, groups of individuals, associations (formal
and informal), proprietary/ partnership firms/ co-operative societies, registered
institutions/ trusts, voluntary agencies, private and public limited companies,
etc.
Refinance Repayment period :3 to 10 years with suitable need based
moratorium not exceeding 18 months.
Eligible activities :Manufacturing, processing and approved service activities
in the cottage, village and tiny industry sector and modernization/ renovation/
expansion/ diversification of existing units.
3. Small Road and water Transport Operators SCHEME (SRWTO) - Under ARF
Borrowers: Individuals, groups of individuals, including partnership/
proprietary firms and co-operative enterprises. The borrowers should be from
the rural areas and should utilise the vehicle mainly for transportation of Rural
Farm and Non-Farm Products and inputs and passengers to/ from marketing
centres. The borrower or his employee should possess a valid driving licence
and the vehicle should be duly registered with the Regional Transport
Authority as public transport vehicle.
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Refinance ceiling: Maximum of Rs.15 lakh per borrower
Repayment period: 5 years with moratorium of 6 months.
Eligible vehicles: Transport vehicles including Light Motor vehicles, Jeeps,
Autorickshaws, Water transport units (boats, launches etc.)
4. Schemes under pre - sanction procedure:
(i) Term Loan to SSI units (through CBs & Scheduled PCBs) :
Borrowers : Individuals, Proprietary / Partnership concerns, Private/ Public
Limited Companies, Promotional/ Developmental Organisations, State Level
Federations/ Corporations, Joint Sector Undertakings.
(ii) Term Loan to Industrial Co-operatives (through SCBs)
Borrowers : Industrial Co-operative Societies identified as viable/ potentially
viable by the State Government.
iii) Project Finance for Agro-Industries (through CBs, Scheduled PCBs and SCBs)
Borrowers :
1. State level corporations such as agro-industries corporations, forest/
tribal development corporations, KVIC/ KVIB, state level cooperative
societies/ federations, co-operative marketing/ processing and industrial
societies, joint sector undertakings, registered societies in KVIC/ KVIB
fold.
2. Public/ private limited companies, partnership firms and proprietary
concerns.
Repayment period: 3 to 10 years with moratorium of 12 months.
5. Soft Loan Assistance Scheme for Margin Money:
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Beneficiaries and purpose: Entrepreneurs having necessary talent/ skills,
but who lack monetary resources to meet the margin requirements stipulated
under the relevant schemes covering both ARF and prior sanction.
Purpose : To set up new units as well as for modernisation/ renovation/
expansion/ diversification of existing units even if the units were not initially
refinanced by the Bank.
Eligibility criteria: Refinance will be available on the banks' satisfying the
eligibility criteria based on recovery performance/the position of NPAs, as
prescribed by NABARD from time to time.
FARM SECTOR FINANCE SCHEME:
A) Refinance Assistance for financing farm mechanization
i) Tractors:
(a) The quantum of refinance in respect of financing for acquisition of second
tractor has been enhanced from existing level of 40% to 90% ( 95% in case of
SCARDBs) of the loan amount as in the case of first tractor.
(b) Though the minimum land holding required for financing tractors is 8 acre
perennially irrigated land, necessary discretion has been given to banks to
evolve their own area specific norms, if need be, and report such norms
evolved by them to the concerned RO of NABARD.
(c) Refinance facility for financing purchase of second hand tractors has been
extended to Gujarat in addition to Punjab, Haryana and Rajasthan.
ii) Power Tillers:
(a) Though the minimum land holding required for financing power tillers is 6
acres of perennially irrigated land, necessary discretion has been given to
banks to evolve their own area specific norms, if need be, and report such
norms evolved by them to the concerned RO of NABARD.
62
(b) Banks have also been advised to give focused attention on financing
power tillers by preparing a three year banking plan for a compact area for the
benefit of the small farmers.
C) Swarnajayanti Gram Swarozgar Yojana (SGSY)
SGSY, formed by restructuring ongoing self employment programmes, viz.
IRDP, TRYSEM, DWCRA, etc., is under implementation from 01 April 1999.
The programme envisages formation of SGSY Groups and their linkage with
the banks. Individuals as also SGSY group members, below poverty line are
assisted under the programme
D) Scheme for setting up of Agriclinic and Agribusiness centers
In pursuance of the announcement made by the Union Finance Minister in the
budget speech for the year 2001-02, National Bank in consultation with the
Ministry of Agriculture, GOI and select banks formulated a scheme for
financing Agriculture Graduates for setting up Agriclinics and Agribusiness
Centres The scheme aims at supplementing the existing Extension Network
to accelerate the process of technology transfer to agriculture and supplement
the efforts of State Agencies in providing inputs and other services to the
farmers.
E) Scheme for financing farmers for purchase of land for Agricultural purposes
In response to the Hon'ble Union Finance Minister's emphasis on the need to
step up priority sector lending and to examine financing farmers for purchase
of land for agricultural purposes, the Working Group constituted by Indian
Banks Association formulated a above scheme in consultation with the
Government of India, RBI and NABARD.
The objective of the Scheme is to finance the farmers to purchase, develop
and cultivate agricultural as well as fallow and waste lands as also consider
63
financing purchase of land for establishing or diversifying into other allied
activities.
Eligibility (i) Small and marginal farmers i.e.. those who would own maximum
of 5 acres of non- irrigated land or 2.5 acres of irrigated land including
purchase of land under the scheme and (ii) Share croppers / Tenant farmers
are eligible.
F) Central Sector Capital Subsidy scheme for Investment Promotion (IPS)
A Central Sector Capital Subsidy scheme (Investment Promotion
Scheme) launched by the Government of India in collaboration with NABARD
for development of privately owned non-forest wastelands in the country is
under implementation since 1998. Of the 40 schemes covering about 1500 ha
sanctioned till date, the coverage is mostly confined to the States of Tamil
Nadu, Andhra Pradesh and Maharashtra, with Tamil Nadu accounting for
more than 20 schemes. The scheme provides for subsidy upto 25% of bank
loan with a ceiling of Rs. 25 lakh for taking up plantation and other on-farm
developments in private wastelands. In view of the availability of substantial
area under non-forest wasteland in all States and the need to develop them, a
nationwide awareness and publicity campaign was launched by the
Government of India in association with NABARD for popularizing the
Investment Promotion Scheme (IPS). As a part of this effort, workshops are
being organized by NABARD in different States/ regions.
G) Refinance Scheme for financing Farmers Service Center (FSC)
NABARD has decided to extend 100% refinance facility to banks for financing
Farmers Service Centres (FSC) set up in collaboration with Mahindra
Shubhlabh Services Ltd (MSSL) for providing various extension services to
farmers including supply of agri-inputs. FSC is intended to benefit farmers by
64
way of higher yields and productivity through private sector participation in
technology transfer and extension services.
Scheme for Rural Finance [11.2]:
SBI Caters to the needs of agriculturists and landless agricultural
labourers through a network of 6600 rural and semi-urban branches.There are
972 specialized branches which have been set up in different parts of the
country exclusively for the development of agriculture through credit
deployment.These branches include 427 Agricultural Development Branches
(ADBs) and 547 branches with Agricultural Banking Divisions (ADBs) and 2
Agricultural Business Branches at Chennai and Hyderabad catering to the
needs of hitech commercial agricultural projects.
The Bank has achieved tremendous growth in agricultural credit.As on
March 2009 ,it has covered 48 lakh farmers with loan outstanding of Rs.
14962 crores , accounting for 28% of total agricultural advances of Public
Sector Banks (PSBs)
Crop Loan
SBI offers financial assistance to meet cultivation expenses for various
crops as short Term Loan. With a repayment period not exceeding 18 months,
the Crop Loan is extended in the form of direct finance to cultivators.
65
Eligibility-Agriculturists, Tenant farmers and Share Croppers who actually
cultivate the lands are eligible for these loans. All categories of farmers -
Small/Marginal (SF/MF) and others are included.
Produce marketing loan scheme
The Bank extends financial assistance to help farmers store produce on
their own to avoid distress sale. The repayment period of the produce
marketing loan (PML) does not exceed 6 months. Further, this facilitates
immediate renewal of crop loans for next crop.
Eligiblity-All categories of farmers - Small/Marginal (SF/MF) and others - are
eligible.
The Bank verifies the following aspects before granting the loan:
1)Service Area Approach.
2) Stocks at the borrowers' residence/godown.
3) Stock statement for valuation.
Loan Amount Security to be furnishedUpto Rs.25,000 DPN, DPN take delivery letter Hypothecation
of stocks.
Above Rs.25,000 Hypothecation of stocks.Mortgage of properties.
Kisan credit card scheme
The SBI offers the Kisan Credit Card for farmers under short-term credit
introduced as per RBI/NABARD guidelines, providing a running account
facility tofarmers to meet their production credit need and contingency needs.
Eligibility-All agricultural clients having good track record for the last two
years are eligible for the Kisan Credit Card. Minimum credit limit: Rs.3000/-
New borrowers requiring crop loans can also avail this product.
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Credit limit is based on operational land holding, cropping pattern and scale of
finance. Withdrawals can be made using easy and convenient withdrawal
slips. The Kisan Credit Card is valid for 3 years, subject to annual review.
Agriculture term loans
SBI gives agricultural term loans in the form of direct finance to cultivators
to create assets facilitating crop production/income generation. Repayments
span not less than 3 years and not exceeding 15 years. Activities broadly
covered are land development, minor irrigation, farm mechanization,
plantation and horticulture, dairying, poultry, sericulture, dry land, waste land
development schemes, etc.
Eligibility-All categories of farmers-small/medium-and agricultural labourers
are eligible for agricultural term loans, provided they have necessary
experience in the activity and the required land area.
Land Development Schemes
The SBI gives credit solutions for land development programmes in the
form of direct finance to cultivators aimed at better productivity. Loans under
this head cover various activities like land clearance (removal bushes, trees,
etc.), land leveling and shaping, contour/graded bunding, bench terracing for
hilly areas, contour stone walls, staggered contour trenches, disposal drains,
reclamation of saline/alkaline soils and fencing.
Eligibility:Loans cover various activities like digging of new wells (open/bore
wells), deepening of existing wells (traditional/inwell bore), energisation of
wells (oil engine/electrical pump set), laying of pipe lines, installing
drip/sprinkler irrigation system and lift irrigation system.
Minor Irrigation Schemes
SBI provides credit for creating new source of irrigation by exploiting
underground water, energyisation of wells, conveyance of water, judicious use
of available water, etc.
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Loans cover various activities like digging of new wells (open/bore wells),
deepening of existing wells (traditional/inwell bore), energisation of wells (oil
engine/electrical pump set), laying of pipe lines, installing drip/sprinkler
irrigation system and lift irrigation system.
Farm Mechanisation Schemes
SBI provides credit for purchase of farm equipment and machinery for
agricultural operations.
This mode of finance covers activities ranging from: Purchase of tractors,
trailers, cultivators, cage wheels, power tillers, combine harvesters, power
sprayers, dusters, etc.
Eligibility- is ascertained on the basis of minimum area requirements:
Tractors - 8 acres of irrigated area Power tiller - 5 -6 acres Combine harvester
- 20 acres
Financing of Combine Harvesters:
o A farmer should own minimum 8 acres of irrigated land.o Non-farmer entrepreneurs capable of utilizing combine harvester for
custom hiring work are also eligible.o Combine harvester should be utilised for a minimum of 1000 hours of
productive work in a year.o Unit cost will include cost of combine harvester and accessories, if any.
Kisan Gold Card Scheme:
Eligibility-Farmers with excellent repayment record for at least past 5
years. New farmers are not eligible for the product.
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Purpose-Investment credit for which term loans are ordinarily sanctioned.
The scheme also includes major family expenditures like marriages and
education of children.
Land Purchase Scheme:
Eligibility-Small/marginal farmers, tenants, share-croppers owning less
than 5 acres of unirrigated / 2.5 acres irrigated land in their own name and
landless agricultural labourers are eligible to avail loan under the scheme,
provided they are our existing borrowers with record of prompt repayment
of loans. Own land before and after purchase should not exceed 5 acres
irrigated / 2.5 acres irrigated.
Security-Land to be purchased with Bank finance will be mortgaged as
security. No other security will be insisted upon.
Repayment-Entire loan will be repayable in 10 years in half-yearly
instalments. Adequate gestation period will be allowed for development
of land for cultivation.
Self Help Groups (SHGs)
SHGs are self managed homogeneous groups of economically backward
people that promote savings among themselves and pool the savings. These
pooled resources are supplemented by external resources i.e. bank credit
when these groups gain experience. The Self Help Groups Linkage
Programme of SBI is under implementation since 1992. At the end of March
2001, the Bank has financed 25,000 self-help groups with aggregate credit
limit of Rs 46 crore.
11.3 Various Finance Scheme Offered From Government:
Maharashtra Rural Credit Project (MRCP) - India - Out line of the project features and Impact
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General: Access to credit has long been considered a major poverty
alleviation strategy in India. A variety of credit-linked programmes
supplemented by subsidies have been implemented. The Integrated Rural
Development Programme (IRDP) operating since 1978-79 has been a major
national rural poverty alleviation programme with a large credit component.
Under this programme, nearly 53 million families below poverty line were
assisted with bank credit of Rs.31 billion and subsidy of Rs. 10.5 billion upto
31st March 1998, but its impact had not matched the resources spent. This
was due to reasons like provision of supply rather than demand-led credit,
loans not tailored to meet needs of individual enterprises, lack of aftercare
support, weak linkages lack of supervision over loan utilisation etc. Further,
there was no effective involvement of the people at any stage of
implementation of the programme. As a result, the incidence of high overdues
and high transaction cost for the banks in financing the rural poor became a
matter of concern for the policy-makers.
Maharashtra Rural Credit Project (MRCP)
Against this backdrop the MRCP supported by IFAD was evolved as an
innovative approach to poverty reduction with people’s participation. The
strategy for implementation of this project has been devised in such a manner
that the rural poor assume centre-stage and their participation ensured at all
stages of the project viz. planning, implementation and monitoring. The
experience gained shows that once the people’s participation is invoked at the
planning stage itself a strong sense of ownership of the project develops
among the people which stimulates them to actively involve in the subsequent
phases of the project.
The MRCP being implemented with an outlay of US$ 48.35 million is financed
by an IFAD loan of US$ 29.2 million supplemented by a contribution of US$
14.97 million from Government of India/Government of Maharashtra and US$
1.65 million from participating banks. The Project which is implemented by a
number of banking institutions, Government agencies and Non Governmental
Organisation (NGOs) since 1994-95 was designed with the principal goal .
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Credit-Cum-Subsidy Scheme for Rural Housing.
Introduction:- The Credit-Cum-Subsidy Scheme for Rural Housing has been
conceived for rural households having annual income upto Rs.32,000/-.
Objective- To enable/facilitate construction of houses for all rural households
who have some repayment capacity.
Target Group- The target group under the scheme will be the rural
households having an annual income of Rs. 32000/- only. However
preference will be given to rural households who are below poverty line.
Salient Features:-
Subsidy upto Rs.10,000/- per eligible household in plain areas and
Rs.11,000/- in hilly/difficult areas.
Loan upto Rs."2"0,000/- per household.
Sanitary latrine and smokeless chulha are integral part of the house.
Achievement
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The scheme has been launched with effect from 1 April, 1999 and is in the
process of implementation.
Funding Pattern
Funds are shared by the Centre and State in the ratio of 75:25.
Implementing Agency
The Implementing Agency for the Credit Cum Subsidy Scheme for Rural
Housing may be the State Housing Board,State Housing Corporation,
specified Scheduled Commercial Bank, Housing Finance Institution or the
DRDA/ZP.
Council for Advancement of People’s Action & Rural Technology (CAPART)
Recognizing the need for an organisation that would coordinate and
catalyze the development work of voluntary agencies in the country,
particularly to ensure smooth flow of benefits to the underprivileged and socio-
economically weaker sections of society, Government of India, in September,
1986 set up the Council for Advancement of People’s Action and Rural
Technology (CAPART), a registered society under the aegis of the
Department of Rural Development, by merging two autonomous bodies,
namely, People’s Action for Development of India (PADI) and Council for
Advancement of Rural Technology (CAPART).
The main objectives of the CAPART are :-
To encourage, promote and assist voluntary action for the
implementation of projects intending enhancement of rural prosperity.
To Strengthen and promote voluntary efforts in rural development with
focus on injecting new technological inputs;
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To act as a catalyst for the development of technology appropriate for
rural areas.
To promote, plan, undertake, develop, maintain and support
projects/schemes aimed at all-round development, creation of
employment opportunities, promotion of self-reliance, generation of
awareness, organisation and improvement in the quality of life of the
people in rural areas through voluntary action.
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FINDINGS
Findings:
1.To remove the rural poverty ,The Nationational rural employment Guarantee programme is an initiative to provide minimum number of days of work in an year to unemployed .
2.The rural counterparts have the need of finance for the purpose of purchase of seeds ,fertilizers, pestisides, payment of wages.Birth/ death of family .
3.The rural counter parts finance the money from various sources like
a) Non institutional sources and institutional sources like Big landlords,mobile traders, credit co-operative, Land Development Bank,commercial bank.
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4.Rural area still suffer from poor housing and shelter .The government has
taken initiatives to construct houses with regard to type of houses ,41% of
rural population have pucca houses ,36%semi-pucca houses and
23%Kachcha houses, against 22%pucca ,37%semi pucca and 41%kachcha
houses in 1981 .But the problem continues due to unchecked growth in
population .The sanitation coverage has gone up to 33% from 22%in
2001 .The plan is to achieve total sanitation by 2015,by providing sanitation
coverage to each and every household
4. Our postage and telegram department covers small towns and villages
through a network of 1,40000 post offices .The government has taken
initiatives in developing communication facilities by expanding landline and
mobile phone service to rural and semi-urban areas ,there are 212 million
phone subscribers in the country and the target is to have 250 million phone
by 2007.
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RECOMANDATION
Recommendation:
As per the above evaluation of the major problems and issues relating
to the rural financial system I can submit the following observations &
recommendations:
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Interest rates: Interest rates must be different for different categories.
First it should be concessional rate exclusively for small and marginal
farmers at 1.5% to 11.5% & Secondly, there should be a higher rate of
interest applicable to the rest of the agricultural borrowers upper limit
for it is15.5%
Infrastructure Development: tempo of agricultural lending has been low
in the eastern regional states like Bihar, Orissa and West Bengal & in
the North Eastern States. So Agricultural and Rural Infrastructure
Development Corporation should be setup in these area which will
concentrate on building up necessary backward and forward linkages
and supporting services as well as formulate location specific schemes
for accelerating the transformation of agriculture and to arrange for
funding of the schemes.
Insurance scheme: Crop insurance scheme which was introduced in
India from Kharif 1985 covering major cereal crops, oilseeds and
pulses. The sum insured was limited to Rs.10,000 per farmer
irrespective of quantum of crop loan and the total sum insured would
be limited to 100 percent of the crop loan disbursed. Proper research
should be done by statutory crop insurance corporation.
Recovery of dues: Recovery is important for survival of the banks, it is
important that a common legal framework covering cooperatives and
commercial banks for recovery of dues for the country as a whole
should be formulated. & The government should setup State level
tribunals for adjudication.
Rationalisation: In present scenario each village is allotted to a
commercial bank branch under the Service Area approach. As per the
analysis each block should be allotted to a bank which has the largest
presence in the block through its branches. Which will reduce the cost
of supervision, improve quality of monitoring and be beneficial to the
customers.
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CONCLUSION
Conclusion:
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Agriculture and its associated activities are found constituting the
economic base and the main source of livelihood and employment for
the people in the state. However, unprecedented growth of population
on one hand and decreasing rate of available agriculture land along
with degradation of supporting natural resources as required for
sustaining crop productivity on the other have been seriously forcing
the problems of sustaining livelihood for farming communities. It is
becoming difficult to do the farming activity without external or internal
sources. In this context the significance of extending non-farm sector
becomes only alternative but it also required finance assistance for its
development.
Means a lot of hard work & government awareness is required to flow
the finance assistance in Rural Economy. But various scheme which
are provided by the various banks & government should be specific in
its eligibility criteria to stop the misuse of these funds by large farmers
and to ensure that the credit reaches the farmers who is in need of
finance.
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LIMITATIONS OF STUDY
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Limitation :
1 As we know that India is underdeveloped country has big population in rual area about 72.2% and has low literacy level due the literacy problem rural counter parts are not aware regarding sources of finance.
2.There are lot of social welfare programmes and scheme for rural area which is introduced by the government is not successful running like NREGA .
3.There are lot of problem facing by the rural counter parts like transportation problem ,low income level, low standard of living ,collective sanction .They have need of finance for fulfilling these requirement
4.The rural counterparts are not aware with technology.
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BIBLIOGRAPHY
Bibliography:
Sr.No. Name Author
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1. Indian Economy Ruddar Datt.
K.P.M. Sundharam.
2. State Bank of India journals
3. Agricultural Financing In
India
S.N.Ghosal
4. Rural marketing R. krishnamoorthy
5. Rural Marketing Romeo S. Mascarenhas
Bibliography:
www.nabard.org
www.rbi.gov
www.sbi.co.in
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