module-7: financial products for rural...

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Personal Finance and Money Management (Basics of Savings, Loans, Insurance and Investments)

Module-7: Financial Products for Rural

People

Learning Objectives By the end of this module, the reader should be able to:

Identify and explain concepts such as savings, term deposits

and loan products for rural people

Match appropriate products to special groups such as women,

farmers, students

Comprehend and recall various types of insurance products -

health, crop, life, asset insurance

Recall and explain various investment products for farmers,

students, women

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Introduction

By now you will agree that we all need to save. The most basic purpose of saving is because

we know that in the future, we will have to pay out lump sums for various reasons –

sometimes we are faced with emergencies like illnesses; sometimes we may be faced with

good opportunities to purchase land or gold or develop a business and sometimes we have to

make large payments just as a part of life...for our children‟s education or marriage.

For these very same reasons, we sometimes have to take loans. This is because we may not

have saved or our savings are not enough to meet our needs.

Lastly, we all need investment in some form or the other. We would like to know that if we

are not around, our family will be economically secure. We would also like to be assured that

if anything were to happen to our home or other assets or crops, there would be some way in

which we could be economically compensated. This is exactly what insurance does.

Now, to meet our saving, borrowing and insurance needs, we can turn to more traditional

forms of financing – such as chit funds, money lenders, friends and relatives, etc. Or we can

look towards more formal financial services – such as banks and micro finance institutions –

to meet these needs. Time and again, it has been shown that in most cases, we would be

better off using formal financial services. They are safer, most convenient, adequately

flexible and affordable.

However, quite often, we think twice about approaching formal financial services, simply

because we have never used them in the past. We fear that they will have complicated

procedures; we wonder if we will be able to understand how these work; we know that they

are supposed to be safe but we worry that due to some technical reasons, we may be at the

losing end...and we have many more concerns.

The way to overcome these concerns is through financial literacy- which means

understanding the system and its products. More importantly, we must overcome the block

that we hold in our mind that these systems are something beyond our reach. After all, they

have been created specifically for us, so they must be something that we can be comfortable

with.

This module focuses on savings, borrowing and insurance products for people in the rural

areas. It focuses on the special financial needs of farmers, women and students.

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Personal Finance and Money Management (Basics of Savings, Loans, Insurance and Investments)

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7.1. Savings, term deposits and loan

products for Rural People

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7.1 Introduction

For a number of us, regularly saving money can be difficult. Sometimes our jobs are such that

we do not earn regular amounts of income. As a result, what we earn is used to meet our

regular and one time needs and we believe that what is left is too little to be saved. We feel

that keeping aside Rs. 5 at the end of the day does not amount to much. But that‟s not true.

Deposit collectors in poor areas in Vijayawada, Andhra Pradesh, help their clients, who are

mostly women, to save by collecting small amounts like Rs. 5 at the end of each day. They

come to the homes or work places of their clients at the end of each day and take the money.

Then at the end of 220 days (if the client has actually contributed everyday) they return a

lump sum of around Rs. 1000 to the client and keep a fee of the balance Rs. 100 for this

service.

While such systems help us to save, we are paying for a savings service instead of getting

paid for the money that we save.

Using that example of small savings, let‟s take the case of someone employed under the

Mahatma Gandhi National Rural Employment Guarantee Act (NREGA). He will earn Rs..

100 per day for at least 100 days. Now, if he is able to save Rs.. 30 per day during his days of

employment, he can collect a total of at least Rs.. 3000. This can be used for times when

employment is not available or saved in formal financial schemes, wherein he will receive

interest on the money earned.

Sometimes, although we do save small amounts regularly, we do not have a safe place in

which to keep this money. There are many examples of people who save by putting money

into hiding places within their homes, bury it in the earth, roll it inside hollowed-out bamboo

or keep it in clay piggy banks. The problem with these methods of saving is that the money

can be lost or stolen or just rot (in the case of notes) due to moisture. In addition, the value of

your money will decline due to inflation. There are other risks too. are the least of the

problem. People who are aware of your savings – like neighbours, children, alcoholic

husbands, etc. may help themselves to the money that you have painstakingly collected.

When it comes to loan products, under traditional systems, there are three ways in which we

usually get access to loans. The first is by selling assets that we already hold or expect to hold

(like advance sale of crops). The second is by „pawning‟ assets that we own or expect to

own. This method is similar to the first one, where we sell the asset but have the opportunity

to buy it back within a pre-decided time frame. But when we do buy it back, we have to pay a

hefty premium (a large amount of money over the amount we sold it for). Lastly, we turn to

money lenders or borrow from friends and relatives. The problem with this form of

borrowing is that we are charged an extremely high rate of interest by the former. In the case

of the latter, we run the risk of spoiling relations with friends and relatives, if somehow we

are unable to pay them back on time.

Where insurance is concerned, there is very little scope available in the non-formal sector.

So, in the case of an untimely death of an earning member of the family, or an expensive

illness or damage to home or crops or other assets, we have to turn to our savings or loans.

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With the spread of formal financial services such as banks, post office accounts and micro

finance organisations, we need not face these unfair, inconvenient or unsafe financial

situations anymore.

Banks, insurance companies and rural microfinance now offer a range of different products

for people in the rural areas. These broadly include:

Loans of different amounts and time frames: These loans are given for a range of

activities such as agricultural and off-farm activities, asset-building and consumption

Leasing arrangements for assets: This enables us to make use of the assets that we

need at reasonable rates of interest.

Savings services of different types: These are designed to help us in a wide range of

activities from saving small amounts from our household cash-flows everyday to

building up lump sum amounts to meet long-term goals

Pension: Various products are available to enable us to live an economically more

comfortable life in our old age

Insurance: Various types of insurance help reduce risk and improve our financial

strength during a crisis

Remittance transfer services: These help us to receive money from loved ones living

far away without the fear that the money can get diverted or misused.

All we need to do is make the effort to learn about the options available to us and take a

confident step towards using them.

7.1.1 Savings, term deposits for farmers, women, students

When it comes to formal savings products, we all broadly look for the same features –

simplicity and convenience (the product should be easy to understand and easy to use), safety

(we should be confident that what we save should be returned to us) and to our advantage

(have some benefits over the traditional methods of saving).

Savings at Post Offices

Post office schemes are also called small savings schemes. These are designed to provide safe

and attractive investment options to the public and at the same time to mobilise resources for

the postal department.

Post office savings accounts:

These accounts are very popular as they can be opened at any post office in India with

a minimum of Rs. 20. On the outer limit, a maximum of Rs. 1 lakh can be deposited

per single holder (across all post office accounts held in that name) and Rs. 2 lakh for

joint holders (again Rs. 1 lakh per person across all post office accounts held).

Maturity period: There is no lock-in/maturity period, just as in the case of a savings

bank account.

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Withdrawals: Any amount can be withdrawn as long as the account holder keeps a

minimum balance of Rs. 50 in simple account and Rs. 500 if he/she opts for the

cheque facility.

Interest: Interest is paid at a rate as decided by the Central Government from time to

time. It has been is 3.5 per cent per annum since March 2001.

Pass Book: As in the case of a bank deposit, depositors are provided with a pass book

with entries of all transactions duly stamped by the post Office.

Tax: Income tax relief is available on the amount of interest that you receive in this

account.

Post office time deposit accounts

These deposits can be compared to bank fixed deposits and like the post office

savings accounts, they can be opened at any post office in India.

Types of Accounts: Accounts of different maturities are available - 1 year maturity, 2

year maturity, 3 year maturity and 5 years maturity.

Deposit amount: A deposit can be opened with a minimum of Rs. 200. There is no

maximum limit.

Maturity period: The deposited amount is repayable after expiry of the period for

which it is made viz: 1 year, 2 years, 3 years or 5 years. The money in the deposit can

be withdrawn 6 months after the deposit is made, if necessary (with certain

conditions).

Interest: Interest is payable annually. At present, since March 2003, the rates are as

follows:

1 year deposit - 6.25




Pass Book: Depositors are given a pass book with entries of the deposited amount

and other particulars, duly stamped by the post office.


account.

Post office monthly income accounts:

This account is somewhat like a bank fixed deposit too. Only one deposit can be

made.

Maturity: 6 years. The deposit can be closed after one year, subject to conditions.

Deposit limits: A minimum deposit of Rs. 1000 has to be made. The maximum

amount is Rs. 3 lakh in case of a single account and Rs. 6 lakh in case of a joint

account. Deposits in all accounts taken together should not exceed Rs. 3 lakh for a

single name and Rs. 6 lakh for a joint account.

Interest: Interest is paid at the rate of 8 per cent per annum, every monthly. In

addition, a bonus equal to ten per cent of the deposited amount is paid at the time of

maturity.

Pass Book: The depositor is provided with a pass book with entries of the deposited

amount and other particulars, duly stamped by the post Office.

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account.

National Savings Certificate:

National Savings Certificates are available for purchase at Post Offices.

Maturity: Period of maturity of a certificate is six Years.

Deposit limits: Certificates are available in values of Rs. 100, Rs. 500, Rs. 1000, Rs.

5000 and Rs. 10,000. There is no maximum limit for purchase of the certificates.

Interest/maturity value: The maturity value of a certificate of Rs. 100 denomination

is Rs. 160.10 and certificates of other maturities are calculated at a proportionate rate.

On maturity: The certificates can be encashed at the post office where it is registered

or any other post office.

Tax: An income tax rebate is available on the amount invested and interest received

every year.

Kisan Vikas Patra:

Kisan Vikas Patra are available for purchase at Post Offices.

Maturity amount / period: The invested amount doubles on maturity after 8 years

and 7 months.

Deposits: You can invest in KVP in values of Rs. 100, Rs. 500, Rs. 1000, Rs. 5000,

Rs. 10,000 and Rs. 50,000. There is no maximum limit for purchase of the

certificates.

Tax: No income tax benefit is available under the scheme.

Public Provident Fund Scheme:

Public Provident Fund schemes can be opened at certain designated post offices

throughout the country and at certain designated branches of Public Sector Banks

throughout the country.

Maturity period: The account matures after 15 years. It can be continued with or

without subscriptions after a block of five years.

Deposit limits:

A minimum deposit of Rs. 500 per financial year is required.

The maximum deposit limit is Rs. 70,000 in a financial year

The maximum number of deposits in a financial year is twelve

Withdrawal: Premature withdrawal is allowed every year after 5 years from the end

of the year of opening the account.

Interest: The interest rate payable is notified by the Central Government from time to

time. At present it is 8% per year

Tax: An income Tax rebate is available on the deposits made and the interest credited

every year is tax-free.

Micro finance, Self Help Groups and Farmers Clubs

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Micro finance is a concept that started in India in the early 1980s. It involves small self help

groups (SHGs) and Non-Government Organisations (NGOs) coming together to provide

credit and saving services to people who do not have access to the formal banking system.

They undertake these activities more from the objective of bringing about development in

areas which need it and less from any profit motive. These organisations are sometimes

supported by large government bodies like Small Industries Development Bank of India

(SIDBI) and the National Bank for Agriculture and Rural Development (NABARD).

Sometimes they are also supported by large trusts set up specifically to make funds available

to people at the lowest levels of society.

These organisations – self help groups, mutually aided co-operative societies, farmers clubs

and micro finance institutions - devise unusual means of savings such as group deposits and

accounts that accept very small, ad hoc amounts. For instance, they enable monthly or weekly

savings at joint-liability group meetings. Here, the people who form the members of the

group save from week to week (or month to month). This money is used for lending to people

within the group when they require it. Sometimes, NGOs and government organisations also

contribute to the kitty of such groups.

Such organisations try to help groups of people plan their entire personal finances with

packages of measures, specifically designed for them. Some of them do not treat savings,

loans and insurance as separate products but part of a financial solution for an individual.

Nationalised Banks, Cooperative Banks, Regional Rural Banks (RRBs) and Local Area

Banks (LABs)

Some banks are set up in the rural areas with the special purpose of funding agricultural and

other activities in the rural areas. They give loans to small and marginal farmers, agricultural

labourers and rural artisans.

Their savings accounts and savings products are structured to meet the needs of their

customers. They offer their customers the chance to save through regular savings accounts,

“no frills” accounts and term deposits.

No frills accounts offered by banks

In a recent move, the RBI – our country‟s central bank - has urged the banking community to

introduce “no-frills” accounts. These accounts are designed to introduce the concept of

banking to those who have no access to it so far. Every bank that offers such accounts has the

freedom to design them. However, the basic characteristic remains the same across banks –

i.e. no frills accounts have to have a zero or a very low balance requirement with limited

transaction facilities. For instance, take the State Bank of India‟s (SBI) no-frills account. To

open a no-frills account with SBI, you must be at least 18 years or age and earning a gross

income of Rs..5000 per month or less. You have to make an initial deposit of just Rs. 50 and

you are not required to maintain any minimum balance while operating the account. Your

account can hold a maximum of Rs..10,000 as the total value of business connections of the

account holder, including other deposit accounts. You receive a passbook, an ATM-cum-

Debit card free of cost and you are also able to avail of the cheques facility.

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7.1.2 Loan products for farmers, women, students:

Each person‟s borrowing needs are likely to be different. Studies by a microfinance

organisation called SafeSave have found that women need longer-term credit to build assets

such as houses, to buy land and lease land, either under their own names or at least jointly.

They also need credit to purchase „female assets‟ such as jewellery, or redeem them from

pawnbrokers and moneylenders. They also need access to credit for investment in their small

business ventures, which may not be farm related.

Similarly, they found that agricultural workers and farmers need consumption loans to avoid

turning to moneylenders in slack and „hungry‟ seasons. Farmers also need loans during the

production season. If they can get loans from formal financial services, it would help to free

up significant amounts of money, which would otherwise go towards paying high-interest

rates to moneylenders for investment in production.

Lastly, they found that in the category of special needs, households need loans to pay for

children‟s education and to meet social obligations that are essential in maintaining social

capital and the wellbeing of children, particularly daughters after marriage.

Banks and micro finance institutions offer loans for all these purposes and more. Banks offer

agriculture loans, mortgage loans, car loans, education loans, gold loans, loans for purchase

of land, home loans, personal loans, business development loans and govt sponsored subsidy

/ low interest loans. Authorized Business Correspondents (BC), sometimes called Kiosk

Banks, have been set up in the rural areas to meet the needs of the local people. These offer

agriculture and personal loans, amongst others. Microfinance Institutions, Self –Help Groups

(SHGs) and Federations, Farmers Clubs, Mutally Aided Co-operative Societies, Cooperative

Banks, Primary Agriculture Cooperative Societies (PACS) and Local Area Banks also offer

loans to meet specific consumption, income generation and business needs of people in the

rural areas. Most of them also offer government sponsored subsidies and low interest rate

loans.

Examples of loans for specific purposes

Home loan and Subsidy from Government

1. Indira Awas Yojana (IAY)

IAY is one of the major flagship programmes of the Rural Development Ministry. It aims

at construction of houses for the Below the Poverty Line (BPL) population in the villages.

Under the scheme, financial assistance worth Rs. 45,000 in plain areas and Rs. 48,500 in

difficult areas is provided for construction of houses. In addition, RBI has advised all

banks to lend up to Rs.. 20,000 per IAY house at a differential interest rate of 4 per cent.

The houses are allotted in the name of the woman or jointly between husband and wife.

The construction of the houses is the sole responsibility of the beneficiary and engagement

of contractors is strictly prohibited. Sanitary latrines are required to be constructed along

with each IAY house for which additional financial assistance is provided from Total

Sanitation Campaign. Smokeless chullah are also a requirement and additional financial

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assistance towards this end is provided from the Rajiv Gandhi Grameen Vidyutikaran

Yojana.

Income generation loan and subsidy from Government

1. Swarnajayanthi Gram Sswarozgar Yojana Scheme (SGSY)

The SGSY scheme is a holistic approach towards poverty eradication in rural India

through creation of self-employment opportunities. This scheme is implemented in the

country through District Rural Development Agencies. The Centre and State fund this

program in the ratio of 75:25. It is designed to help poor rural families to cross the poverty

line. This is achieved through providing income generating assets and inputs to the target

groups through a package of assistance consisting of subsidy and bank loan.

SGSY came into existence in 1999-2000 duly merging the schemes of Integrated Rural

Development Program (IRDP), Training for Rural Youth under Self Employment

(TRYSEM) Development of Women & Children in Rural Areas (DWCRA) and Supply of

Improved Toolkits to Rural Artisans (SITRA).

2. Prime Minister’s Employment Generation Programme (PMEGP)

The PMEGP is a credit linked subsidy programme of the Government of India. It has been

introduced by merging the two schemes, namely, Prime Minister‟s Rojgar Yojana

(PMRY) and Rural Employment Generation Programme (REGP). The objectives of the

programme are:

To generate employment opportunities in rural as well as urban areas of the country

through setting up of new self employment ventures/projects/micro enterprises.

To bring together widely dispersed traditional artisans/ rural and urban unemployed

youth and give them self-employment opportunities to the extent possible, at their

place.

To provide continuous and sustainable employment to a large segment of traditional

and prospective artisans and rural and urban unemployed youth in the country, so as

to help arrest migration of rural youth to urban areas.

To increase the wage earning capacity of artisans and contribute to increase in the

growth rate of rural and urban employment.

3. Swarna Jayanti Shahari Rozgar Yojana (SJSRY )

The three key objectives of the revised Swarna Jayanti Shahari Rozgar Yojana (SJSRY)

are:

Addressing urban poverty alleviation through gainful employment to the urban

unemployed or underemployed poor;

Supporting skill development and training to enable the urban poor have access to

employment opportunities provided by the market or undertake self-employment; and

Empowering the community to tackle the issues of urban poverty through suitable

self-managed community structures and capacity building programmes.

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The delivery channel of the Scheme is through Urban Local Bodies (ULBs) and

community structures.

Schemes catering to minorities

1. National Scheduled Castes Finance and Development Corporation

This scheme provides concessional finance for setting up of self-employment projects

and skill-training grants to unemployed SC persons

2. National Minorities Development & Finance Corporation (NMDFC)

The NMDFC provides financial support to minorities in areas such as Agriculture &

Allied activities, Technical Trade, Small Businesses, Artisan & Traditional

Occupation and the Transport & Service Sector

Loans for financing purchase of land for agricultural purposes

The agricultural policy of the Government of India aims to provide a substantial flow

of credit to farmers to increase agricultural productivity. Under the direction of the

Government of India, banks provide term finance to farmers for development

purposes and short term loans for production purposes. They also finance farmers

who wish to purchase land to expand their activities and make existing small and

marginal units economically viable.

Loans for Tenant Farmers

Regarding lending to tenants and oral sharecroppers, RBI has already advised banks

to accept certificates provided by local administration/ Panchayati Raj Institutions to

testify their status and identity. The Internal Working Group suggests that banks may

consider taking, as an alternative, an affidavit explaining their identity and status for

loans up to a certain amount (say, Rs. 50,000/-), where field visits and local enquiries

do indicate that the tenant/sharecropper has a right to the usufruct of the land. It

further recommends that banks may encourage such farmers to form Self-Help

Groups (SHGs) to create social capital that could instead be used as collateral for

purposes of giving crop loan.

With banks and financial institutions shying away from lending to tenant farmers, the

Andhra Pradesh Government has begun a drive to identify eligible farmers and share

the list with banks in the vicinity. To begin with, it plans to issue a loan eligibility

card to about 5.55 lakh „Licensed Cultivators'. The banks will not seek any security or

guarantee for loans up to Rs. 50,000.

With five high security features (such as watermarks which can be seen only under

ultra violet light), these cards would be valid for one year and would assign no right

on land to tenant farmers. After one year, they will have to renew it or get a new one.

Apart from making them eligible for loans, these cards would help tenant farmers get

access to input subsidies and insurance claims which generally go to landowners.

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Specific loans from Micro Finance Institutions

Micro Finance Institutions are not standardised across the country and a micro finance

institution in your area may have its own uniquely structured loans for various purposes.

Below are some examples of loans offered by micro finance institutions. These are only to

give you an idea of the unique structure and the specific purposes that such organisations

cater to. However, you will need to approach the organisations in your area to find out what

products are available to you.

Large loans for fishing business

The South Indian Federation of Fishermen Societies (SIFFS) offers loans to women who

travel in groups to distant markets to buy large quantities of fish for drying. They sell such

fish locally during the lean season. As a result, this enterprise requires a large initial

investment and the returns arrive only after four months.

Accordingly, SIFFS offers a loan of Rs. 10,000–20,000. The group of women have to pay

interest on these loans every month. But they can repay the principal (loan amount) at the

end of five months, by which time they have successfully sold off their stock of dried fish.

Loans for adolescent girls and changing the dowry system

Some organizations involved in the Credit and Savings Household Enterprise (CASHE)

project offer a loan product for adolescent girls. The loan, available for both parents, enables

the girls to purchase a productive asset to help them earn an income, delay marriage, bring

the asset to their in-laws‟ house when they do marry. This type of loan aims at not only

empowering young women, it also tries to reduce incidence of dowry.

Consumption loans for men, as well as women

The Area Networking and Development Initiative‟s (ANANDI‟s) savings-and-credit groups

make loans available to both men and women for consumption purposes. Families are given

access to loans for either purchasing assets or simply making non-productive expenses

(spending on festivals and other occasions, etc.). The groups themselves ensure that a

household has the repayment capacity. This is to protect families from falling into the hands

of moneylenders.

Loans from Banks

Loans from banks tend to be more standardised across India. If a particular bank is offering a

specific type of loan from a branch in a village in Bihar, it will usually offer the same product

from its branches in Maharashtra or any other state. As per Reserve Bank of India guidelines,

for loans up to Rs. 25000 per borrower, no margin money or collateral security or third party

guarantee will be insisted upon by the financing banks except hypothecation of assets created

out of the loans. The rate of interest chargeable to the beneficiaries or banks will be those as

may be specially by the Reserve Bank of India / NABARD from time to time. Repayable

may be subject to the cash flow of the scheme, the loan repayment period will be between 3

to 10 years with a moratorium of 6 to 12 months.

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Here is a list of some specifically designed loans (especially for women) offered by leading

nationalised banks.

Here again, these are only to give you an idea of the types of loans that are available to you.

The actual details mentioned may change from time to time and the loans may even be

discontinued and fresh ones may be offered in their place.

Bank of India Name of the loan: Star Mahila Gold

The purpose of Star Mahila Gold Loan Scheme is for purchase of gold ornaments, preferably

hallmarked, from reputed jewellers and/or gold coins from the Bank of India. This scheme

mainly targets Indian women, between 18 year and 60 years of age. They may be working or

non working.

Central Bank of India

Name of the loan: Cent Kalyani

This scheme was launched to benefit women entrepreneurs and women professionals. It

offers financial assistance to women who wish to start business or pursue careers in industry,

agricultural and allied activities or follow any profession. The bank, with a network of

branches spread throughout the country, welcomes women entrepreneurs to avail financial

assistance for pursuing careers of their choice.

Karur Vysya Bank

Name of the loan: KVB Mahila Swarna Loan

Karur Vysya Bank offers instalment loans to working women within the age of 18-50 years

for purchase of gold, diamond ornaments and silver wares. These women must be

permanently employed in central/state government offices, public sector undertakings,

reputed public and private companies, teachers, lecturers, professors and employees of

schools, colleges and universities and other reputed institutions.

A guarantee may be given by the husband of the borrower. In case the husband is not there, a

guarantee from the father or any other earning member of the family or third party guarantee

can be obtained. In case of fully secured loans, the guarantee may be waived.

UCO Bank

Name of the loan: Nari Sakthi

This scheme was started to provide financial assistance to salaried women. Concessions are

offered on interest and the repayment can be made in 5years, in equated monthly instalments.

The lady should be either a permanent employee or should have completed 3 years of service,

among other conditions.

United Bank Of India

Name of the loan: United Nari Samman Yojana

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United Bank of India brings a special loan scheme to cater to all personal financial needs of

women who are either salaried or self-employed/professionals. This scheme is mainly for

buying gold ornaments, diamonds, precious stones, purchase of consumer durables,

household goods, etc. It can also be used to meet personal expenses such as wedding

expenses and expenses for a domestic trip, etc. Women eligible for the scheme should be 18

years and above, maintain a savings/current deposit/term deposit with the bank and fulfil the

other work related criteria stated by the bank.

Vijaya Bank

Name of the loan: Assistance to Rural Women in Non-Farm Development (ARWIND)

Assistance to Rural Women in Non-Farm Development (ARWIND) was introduced to

support their economic activities of rural women in the non-farm sector on a cluster or group

basis. This scheme has two components- the credit component (wherein a recognised self

help or voluntary group can take loans to help women) and the promotional component

(where the women entrepreneur or professional herself is given a loan).

Name of the loan: Assistance For Marketing Of Non Farm Products Of Rural Women

(MAHIMA)

Assistance For Marketing Of Non Farm Products Of Rural Women (MAHIMA) scheme

envisages providing loans and also assistance in grant to Registered Voluntary Agencies

(VA), Non-Governmental Organisations (NGOs) and other promotional organisations

engaged in marketing the products of rural women. Such organisations should have been

working for at least 3 years with proven track record and experience in production or

marketing of rural products and should satisfy the norms of the financing banks and

NABARD prescribed from time to time.

Credit requirements of Farmers

There are a number of loans that are available specifically for farmers. The most popular

amongst these are Kisan Credit Cards and various crop loans for farmers.

Kisan Credit Card

The Kisan Credit Card is an innovative form of providing adequate and timely credit to

farmers with flexible and simplified procedures. It has a single window clearance and is

broad based – it meets the short-term, medium term and long term credit needs of the

borrowers for agriculture and allied activities and a reasonable component for consumption

needs.

Farmers covered under the scheme are issued a credit card and a pass book or a credit card-

cum-pass book which contains their name, address, particulars of land holding, borrowing

limit, validity period, a passport size photograph of holder etc. This serves both as an identity

card and facilitates regular recording of transactions. It is valid for 3 to 5 years subject to

annual review. The security, margins, rate of interest, etc. on the card are set as per RBI

norms.

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The farmers are required to produce their card-cum-pass book whenever they operate the

account – i.e. withdraw money or repay their loans. The card can be operated through issuing

branches or PACS in the case of Cooperative Banks or through other designated branches at

the discretion of bank.

Farmers can use the card to make a number of withdrawals and repayments, as long as they

remain within their credit limit. The credit limit is fixed on the basis of their land holding,

cropping pattern and scale of finance that they require. Within the overall limit, there are sub

limits which cover short term, medium term as well as term credit. These are fixed at the

discretion of the issuing banks.

As an incentive for good performance, the credit limits are enhanced to take care of increases

in costs, changes in cropping patterns, etc.

Farmers are given the flexibility to reschedule their loans in case of damage to crops due to

natural calamities. Further, crop loans given under the KCC Scheme (for certain notified

crops) are covered under the Rashtriya Krishi Bima Yojna (National Crop Insurance

Scheme). This is a crop insurance scheme introduced by the Government of India to protect

farmer against loss of crop yield caused by natural calamities, pest attacks etc. The farmers

are also given personal and accident insurance which covers the risk of their death or

permanent disability.

Banks also benefit from issuing KCCs as it pre-empts repeated appraisal and processing of

loan papers. The scheme has also been found to improve the recycling of funds and recovery

of loans. Last but not the least, it reduces transaction costs to the banks and improves banker -

client relationships.

Crop Loans for Farmers A crop loan consists of short term credit and is generally obtained from primary credit co-op

societies of a village or from a commercial bank. The period of the loan is about one year,

except for sugarcane for which the period is 18 months. Crop loans are given to farmers

either on the basis of the gross value of the crop or on the basis of the cost of cultivation. The

farmer has to offer his land as a security against which the loan is given.

There is a three tier structure providing crop-loans through co-operative institutions. An apex

bank or state co-operative bank forwards such loans to a district central co-operative bank.

The district co-operative bank, in turn forwards it to the village co-operative credit society. If

a farmer takes such a loan from a commercial bank, it is available at a nearby branch. As a

result, farmers can get such loans in the village itself.

Since a crop loan is for one season, it is to be repaid in one instalment after the harvest of the

crop. A crop loan is an annual requirement and a farmer has to take a fresh loan for every

new crop season. Therefore, he has to repay the earlier loan with interest within stipulated

time. Further, since such loans are required every season/every year, the procedure of getting

such loans is simple and convenient.

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Longer term credit needs of farmers

Beyond loans for cropping and farm maintenance, for farmers to increase their scale of

operation, they require very long term credit. This could involve taking loans with terms of

anywhere between 5 to 20 years or even more, in some special cases. Some activities that

may require long term loans include creation of a sinking well, land levelling, fencing and

permanent improvements on land, purchase of large machinery like tractors with attachments

such as trolleys, establishment of fruit orchard (such as mango, cashew, coconut, sapota

(chiku), orange, pomegranate, fig, guava, etc. Such activities may require very large

investments and may not give returns for a period of even 4-5 years. However, they are

required if the farmer wants to increase his scale of operations.

Direct Finance’ for Agricultural Purposes

Direct Agricultural advances denote advances given by banks directly to farmers for

agricultural purposes. These include short-term loans for raising crops i.e. for crop loans. In

addition, advances upto Rs. 5 lakh to farmers against pledge/hypothecation of agricultural

produce (including warehouse receipts) for a period not exceeding 12 months, where the

farmers were given crop loans for raising the produce, provided the borrowers draw credit

from one bank.

Direct finance also includes medium and long-term loans (Provided directly to farmers for

financing production and development needs) such as Purchase of agricultural implements

and machinery, Development of irrigation potential, Reclamation and Land Development

Schemes, Construction of farm buildings and structures, etc. Other types of direct finance to

farmers includes loans to plantations, development of allied activities such as fishery, poultry

etc and also establishment of bio-gas plants, purchase of land for agricultural purposes by

small and marginal farmers and loans to agri-clinics and agri-business centres.

‘Indirect Finance’ to Agriculture

Indirect finance denotes to finance provided by banks to farmers indirectly, i.e., through other

agencies. Important items included under indirect finance to agriculture are as under :

(i) Credit for financing the distribution of fertilisers, pesticides, seeds, etc.

(ii) Loans upto Rs. 25 lakhs granted for financing distribution of inputs for the allied

activities such as, cattle feed, poultry feed, etc.

(iii) Loans to Electricity Boards for reimbursing the expenditure already incurred by them

for providing low tension connection from step-down point to individual farmers

for energising their wells.

(iv) Loans to State Electricity Boards for Systems Improvement Scheme under Special

Project Agriculture (SI-SPA).

(v) Deposits held by the banks in Rural Infrastructure Development Fund (RIDF)

maintained with NABARD.

(vi) Subscription to bonds issued by Rural Electrification Corporation (REC) exclusively

for financing pump-set energisation programme in rural and semi-urban areas and

also for financing System Improvement Programme (SI-SPA).

(vii) Subscriptions to bonds issued by NABARD with the objective of financing

agriculture/allied activities.

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(viii) Finance extended to dealers in drip irrigation/sprinkler irrigation

system/agricultural machinery, subject to the following conditions:

a. The dealer should be located in the rural/semi-urban areas.

b. He should be dealing exclusively in such items or if dealing in other products,

should be maintaining separate and distinct records in respect of such items.

c. A ceiling of upto Rs. 20 lakhs per dealer should be observed.

(ix) Loans to Arthias (commission agents in rural/semi-urban areas) for meeting their

working capital requirements on account of credit extended to farmers for supply

of inputs.

(x) Lending to Non Banking Financial Companies (NBFCs) for on-lending to

agriculture.

Bank of India: Agriculture Lending – General Documents / Papers to be obtained

Agriculture Finance is granted for short/medium/long term for various agricultural activities.

1. Duly filled in application form along-with photographs of borrower and guarantor

(Where-applicable).

2. Photo ID of borrower and guarantor (Where-applicable) such as Voters ID

Card/Passport/Driving License/Photo attested by a Gazetted Officer.

3. Proof of residence such as Ration Card/Kisan Bahi/Electricity Bill/Telephone Bill.

4. Copy of land extract issued by Revenue Officials such as 7/12 extract/

Khatauni/Kisan Bahi, Pattadar Passbook or copy of Original title of land.

5. Quotations/Indent for inputs/equipment, livestock to be purchased etc.

6. Necessary permissions/licenses, wherever applicable.

7. No Dues Certificate from the Banks in command area or Notary Affidavit by

borrowers about the borrowings/liability from the Financial Institutions.

8. Non Judicial Stamps and Revenue Stamp as applicable (After sanction).

9. Introduction from existing SB account holder for opening of SB account wherever

applicable (After sanction).

Bank of India : Crop Loan - Short term Agriculture Advances - Documents /Papers to

be obtained

Advances extended to meet expenses for raising a particular crop including various

agronomic practices etc.

1. Duly filled in application form with photographs of borrower and guarantor (Where

applicable).

2. Photo ID of borrower and guarantor (Where-applicable) such as Voters ID

Card/Passport/Driving License/Photo attested by a Gazetted Officer.

3. Proof of residence such as Ration Card/Kisan Bahi/Electricity Bill/Telephone Bill.

4. Copy of land extract issued by Revenue Officials such as 7/12 extract/

Khatauni/Kisan Bahi, Pattadar Passbook or copy of Original title of land.

5. Quotations/Indent for inputs to be purchased etc.

6. No Dues Certificate from the Banks in command area or Notary Affidavit by

borrowers about the borrowings/liability from the Financial Institutions (After

sanction).

7. Non Judicial Stamps and Revenue Stamp as applicable (after sanction).

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8. Introduction from existing SB account holder for opening of SB account wherever

applicable (After sanction).

7.1 Summary

To meet our saving, borrowing and insurance needs, we can turn to more traditional

forms of financing – such as chit funds, money lenders, friends and relatives, etc. Or

we can look towards more formal financial services – such as banks and micro

finance institutions – to meet these needs. The latter are safer, most convenient,

adequately flexible and affordable.

Banks, insurance companies and rural microfinance now offer a range of different

products for people in the rural areas. These broadly include:

o Loans of different amounts and time frames: These loans are given for a range

of activities such as agricultural and off-farm activities, asset-building and

consumption

o Leasing arrangements for assets: This enables us to make use of the assets that

we need at reasonable rates of interest.

o Savings services of different types: These are designed to help us in a wide

range of activities from saving small amounts from our household cash-flows

everyday to building up lump sum amounts to meet long-term goals

o Pensions: Products are available to enable us to live an economically more

comfortable life in our old age

o Insurance of all types: These help to reduce the risk and improve our financial

strength in crises

o Remittance transfer services: These help us to receive money from loved ones

living far away without the fear that the money can get diverted or misused.

Post office savings saving and investment products are designed to provide safe and

attractive investment options to the public. They are also convenient as they can be

accessed at any post office (except for PPF).

We can also save through mediums such as Regional Rural Banks (RRBs), Local

Area Banks (LABs) and Micro Finance Insitutions

Each person‟s borrowing needs are likely to be different. These special needs can be

met through loan schemes designed by Micro Finance Institutions and local banks.

Financial institutions and savings products

Financial Institutions Type of Saving Products

Banks

Saving Accounts

No Frill Accounts

Term Deposits

Authorized Business correspondents (BC) Or

Kiosk Banks

Saving Accounts

Microfinance Institutions Monthly or Weekly Savings at Joint-liability

Group meetings (Only from JLG group

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members)

Self –Help Groups (SHGs) and Federations Monthly or Weekly Savings at Self-Help

Group meetings (Only from SHG group

members)

Farmers Clubs Monthly or Weekly Savings at Farmers

Group meetings (Only from Farmers group

members)

Post-offices Term Deposits

Mutually Aided Co-operative Societies Monthly or Weekly Savings (Only from

Society members)

Cooperative Banks Saving Accounts

No Frill Accounts

Term Deposits

Local Area Banks Saving Accounts

No Frill Accounts

Term Deposits