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MICRO-CREDIT AND RURALFINANCIAL SERVICES- HOW CANIT CHANGE AGRICULTURE

Presented By-Nishant Kumar(65)

Rajeev Gudi(71) Shiv Shakti Kumar(77)

SEC-B, MRMKIIT School Of Rural Management, Bhubaneswar 10/10/09

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Introduction Need for finance in AgricultureSegments of agriculture advancesPresent status of rural credit

What is micro-creditAdvantages of Micro-creditDifferent side of Micro-creditConclusion

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India is the home of one third of the worlds poor; officialestimates range from 26 to 50 percent of the more than one billion

population

More then 60 percent of the population depend on agriculture for there livelihood directly or indirectly

In which 80 percent of the farmer are small(less then 2 ha) withvery small land holding

Earning from this piece of land not able to full-fill the investmentneed for the next crop season

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Introduction

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Contd.

Which force the farmer to take the money at a very highinterest rate from the local moneylender

Which drag the farmer in to the vicious circle of poverty

Leads to.

Low productivity

Farmer Suicide.

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Conditions required to developagricultural sector

Secure access and proper use of land and water Better access to lucrative markets Optimum productivity level (know-how & tools)

Good yield, low cost for competitiveness andsustainability

Risk management tools Crop insurance, diversified sources of income, production

contracts, risk sharing, etc.

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To Increase productivity

To Improve conditions for sales

For Diversification of family income

Minimizing the risk

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SECURE ACCESS TO INPUTS and PROPER USE of LAND and WATER

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BALANCED DEVELOPMENT FOR

SUSTAINABLE AGRICULTURE

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Short term production credit for crop production through crop loan

Medium and long term investment credit -minor irrigation, farmmechanization, land development, horticulture, animal husbandry,agri-clinics, rural godowns, etc.

Commercial agriculture like cold storage, agro-processing, agri-

exports

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During last three year pace of disbursement to agriculturehas picked up and more than doubled crossing a figure of 200,000 cr during 2006-07

Study have shown that despite various measure around50% of family availing credit formallyShare of bank credit has been around 65% of the totalcredit made available to agriculture

In case of small /marginal the cover is 25% which is themajor chunk of agriculture population

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Evolution of Micro-credit in India

Microfinance has been in practice for ages ( thoughinformally).Legal framework for establishing the co-operative movementset up in 1904.

Reserve Bank of India Act, 1934 provided for theestablishment of the Agricultural Credit Department. Nationalization of banks in 1969Regional Rural Banks created in 1975.

NABARD established as an apex agency for rural finance in1982.Passing of Mutually Aided Co-op. Act in AP in 1995.

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Types of Micro-credit providers inIndia

a) Domestic Commercial Banks:Public Sector Banks;Private Sector Banks & Local Area Banks

(b) Regional Rural Banks

c) Co-operative Banks

(e ) Registered NBFCs, Co-operative Societies

.

(d)Unregistered NBFCs

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An economically poor individual gain strength as part of agroup.Reduces transaction costs for both lenders and borrowers.Lenders have to handle only a single account instead of alarge number of small-sized individual accounts.Borrowers cut down expenses on travel (to & from the

branch and other places) for completing paper work and on

the loss of workdays in canvassing for loans.Collateral free loans to poor farmers.

Advantages of Micro-credit

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Access to credit encourages:

Increased productivity: by financing purchases of inputs by financing purchases of equipment

Improved conditions for sales: by avoiding dependence on market intermediaries who usually

finance small-scale farmers by making it possible to stockpile harvests in order to sell them

later when prices are better (warehouse receipt financing or inventorie crdit)

Diversification of family income: new crops or types of livestock added value (processing) new activities (small business, craftwork, etc.)

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The crucial question remain, has the society acceptedsuicide at the hidden cost of micro-creditDoes it create wealthThere is a gigantic difference between earning a great dealof money and being richIs micro-credit exploitive, in terms of rate of interest ?Does it create a debt trap is

Is micro-credit sector plays safe allowing only successstory to get hypedIs the motive of the sector only to drive the money lender away

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Do the negative impact micro-credit outweighed the positive

Evidence indicate that micro-credit is less abouteradicating poverty and more about sustaining a financialservice industry that thrives on poverty.Micro-credit is designed to keep the saving low such that

the credit can move uninterrupted and keep the poor trapped

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Effort to improve credit flow especially to small, marginal, tenantand share cropper

Measure to increase credit absorption capacity by focusing onirrigation, transformation, marketing and other post harvestfacility

KCC has become the most convenient and popular mode for production credit. It needs to be provide to all eligible potential borrowers

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Besides KCC other card like, Bhoomiheen grameen card, generalcredit card and kisan gold credit card, need to be popularized for meeting need of all category of farmer

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In order to attain double digit growth in eleventh five year plan agriculture sector should have a growth of at least4%,instituutional credit especially investment credit has togeared up to meet the target growth.

Contd.

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Thank yo u!

THANK YOU!

10/10/09

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