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.

60

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.

66

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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