Rural Financing Strategy

7/31/2019 Rural Financing Strategy

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RURAL FINANCING STRATEGY

Submitted By:-Anish Wadhwa

Desai Anuja

Pawan Singh

Submitted To:Prof Akash


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Introduction

In India, over 65% of the population resides in villages.And approx, 70% of the villagers do not have bankaccounts.

But Finance is not completely absent. Just the sourcesof supply are informal like moneylenders

Moneylenders are said to control one third of all ruralloans, and wield considerable strength, given theirpersonal acquaintance with the local population andomnipresent distribution network.


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Rural finance- An understanding

Rural finance is a line of credit specificallyintended for the requirements of the agriculturalindustry. Ranging from mortgage assistance to

land development and farming equipment, thesecredit plans are a significant aspect of rural andsemi-urban support.

In a country like India, farming finance is a serviceof utmost importance and closely related to thecontinued progress of the country, as agriculturecontinues to play a central role.


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Rural finance- An understanding

A number of banks and finance companieshave begun to specialize in offering credit tofarmers.

Finance in this sector has the added benefit ofsupporting further work in regional areas. As

banks and financial services continue toextend their services into rural India they aregenerating employment in the vicinity.


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Financial aids for the poor clusters in rural

areas today are in the following forms:

Nationalized Banks

Private Banks

Credit Societies

Co-operative Banks

Informal loans (Money Lenders)


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Finance Presence in Rural India

Nationalized Banks Regional Rural Banks (RRB/ Gramin)

Rural banking in India started since the establishment of

banking sector in India. Rural Banks in those days mainly

focused upon the agro sector. Regional rural banks in India

penetrated every corner of the country and extended a

helping hand in the growth process of the country.

Till date in rural banking in India, there are 14,475 rural

banks in the country of which 2126 (91%) are located in

remote rural areas.


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Nationalized Banks Regional Rural Banks (RRB/ Gramin)

SBI

SBI, has a breathtaking rural branch network of 6,600 with

972 specialized branches. These branches have been setup in different parts of the country with the sole purposeof developing agriculture through credit deployment.

SBI has developed rural agricultural business units,education programs for local farmers and kisan cards. SBIhas gradually evolved to become the leader in agriculturalfinance with a portfolio of Rs. 18,000 crores in loans toaround 50 lakh farmers.


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Nationalized Banks Regional Rural Banks (RRB/ Gramin)SBI

One of their recent endeavors is the tie-up withNational Agricultural Cooperative Marketing

Federation (NAFED) to finance farmers for cultivationof various crops like soyabean, paddy, jute and potato.

SBI has 30 Regional Rural Banks in India known asRRBs. The rural banks of SBI is spread in 13 states

extending from Kashmir to Karnataka and HimachalPradesh to North East. The total number of SBIsRegional Rural Banks in India branches is 2349 (16%).


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Private banks- Commercial

ICICI ICICI Bank, the countrys second largest bank, has adopted the

franchise model of operation in rural markets.

A one man office (known as kendra) in the village forms an interfacebetween the villager and the Banks products and facilities. Crop loans,housing loans, automobile loans, farm equipment, seed financing andinsurance policies are all on offer.

The number of borrowers has risen from 130 in 2000 to over 42,000today, and the rural loan book has crossed Rs. 16,000 crore. And thebanks default rate in the rural retail sector is 1 2 % as compared to2 3% in the rural wholesale sector and 5% for the banking sector asa whole.


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Private banks- Commercial

ICICI

ICICI is looking at tying up with micro-financeinstitutions and local self-help groups (or creatingthem if already do not exist).

ICICI has gone further in tying up with large corporatemajors having significant presence rural India andproviding loans/banking services to theirdistributors/traders and also it is working in tandemwith postal department.


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Cooperative Banks Credit Cooperatives

The Co-operative Credit Structure (CCS) of India wasset up to serve the needs of both short term and long

term rural credit in India. Short term credit is suppliedin rural India by three institutions State Cooperative Banks (SCB)

District Central Cooperative Banks (DCCB)

Primary Agricultural Credit Societies (PACS)

Long term credit is supplied by the Primary Cooperative Agriculture and

Rural Development Banks (PCARDB).


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Challenges

Some of the major challenges which intermediaries(Local Financial Institutions) face today in India are:

The supply dilemma: The exclusion of large numbers ofthe rural population from the formal banking sector maybe for several reasons from the supply side:

Persons are un-bankable in the evaluation/perception ofbankers

The loan amount is too small to invite attention of the bankers The person is bankable on a credit appraisal approach but

supporting the accounts and expanding branch network is notfeasible and viable


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Challenges

The supply dilemma:

High transaction costs particularly in dealing with a large number ofsmall accounts

Lack of collateral security Inability to evaluate and monitor cash flowcycles and repayment capacities due to information asymmetry, lackof data base and absence of credit history of people with smallmeans

Human resources related constraints both in terms of inadequacy ofmanpower and lack of proper orientation/expertise

Adverse security situation prevailing in some parts of slums andother such localities


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Challenges

The demand dilemma:

There are several reasons for the rural poor remaining excluded fromthe formal banking sector:

High transaction costs at the client level due to expenses such as travel

costs, wage losses, incidental expenses Lack of awareness and lack of social capital

Non-availability of ideal products

Hassles related to documentation and procedures in the formal system

Easy availability of timely and doorstep services from money

lenders/informal sources Prior experience of rejection by/indifference of the formal banking system.


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Question 1


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Rural Financing Strategy

Documents

Transcript of Rural Financing Strategy