vikram grand project

7/28/2019 Vikram Grand Project

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A

PROJECT REPORT

ON

The need of Customer Relationship Management inReal Estate In Ahmedabad

SUBMITTED TO

ANNAMALAI UNIVERSITY

&

THE NIS ACADEMY

IN THE PARTIAL FULFILLMENT OF THE REQUIREMENT

FOR

THE DEGREE OF MASTERS OF BUSINESS ADMINISTRATION

YEAR 2013

EN NO: 4741100045PROGECT GUIDANCE DEVELOPED BY

Mr. AJAY SHAD VIMALKUMAR RAMANI
http://www.google.co.in/url?sa=i&rct=j&q=annamalai+university+logo&source=images&cd=&cad=rja&docid=yDTD66ASrKEGbM&tbnid=D5Uqz50lMhKLbM:&ved=0CAUQjRw&url=http://indiaresultsexam.blogspot.com/2012/08/annamalai-university-msc-zoology-2012.html&ei=VMdmUfCbNsnorQeHw4DgBw&bvm=bv.45107431,d.bmk&psig=AFQjCNFYfOG7XQedmvEV0-zO8audzAWYgQ&ust=1365776592499448


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RURAL FINANCE (2013)

ANNAMALAI UNIVERSITY {NIS ACADEMY AHMEDABAD}Page 2

A

DISSERTATION SUBMITTED

TO

THE ANNAMALAI UNIVERSITY OF CHENNAI

IN THE PARTIAL FULFILMENT OF THE REQUIREMENT

FOR

THE DEGREE OF MASTERS OF BUSINESS ADMINISTRATION (MBA)

(2012-2013)

RESEARCH GUIDE RESEARCHER

Mr. AJAY SHAD VIMALKUMAR RAMANI


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DECLARATION

The projectreportentit led The need of Customer Relationship Management in

Real Estate In Ahmedabad has beens ub mi tt ed toAnnamalai University, Chennaiin partial fulfillment for the a ward of degree of Master ofBusinessAdministration.

Ithe undersigned hereby declare that this report has been completed byme under

theguidance of VIMALKUMAR RAMANI.

Thereportisentirelytheresultofmyowneffortsandhasnotbeensubmittedeitherinpartorw

holetoanyotherinstituteoruniversityforanydegree.


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CERTIFICATE

NIS ACADEMY (MBA)

Certified that this Project Report Titled RURAL FINANCE is the bonafide work of

MR. VIKRAM MALI (Enrolment No.474110049), who carried out the research. I also

certify further, that to the best of my knowledge the work reported herein does not

form part of any other project report or dissertation on the basis of which a degree or

award was conferred on an earlier occasion on this or any other candidate.

DIRECTOR

AJAY SHAD


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INDEX

Sr. No. Particulars PageNo.

1 Meaning of a Rural Finance. 11.

2 Meaning of an Underdeveloped Economy. 12-13

3 Characteristic of the Indian Economy an on

underdeveloped Economy

14-16

4 Natural Resources in Process of Economic Development

in Rural India.

18-24

5 Rural Market Countries in Total Indian Economy. 25-31

6 Schemes & Facilities from the Various Banks. 31-43

7 Various Finance Schemes Offered from Government. 44-478 Need For Rural Finance 49-55

9 Sources Of Rural Finance. 57

10 Private Agencies Sources. 58-59

11 Institutional Sources Of Finance. 60-74

12 Challenges Of Rural Finance. 76-81

13 Conclusion. 82

14 Annexure. 8315 Recommendation 84-85

16 Bibliography. 86


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PREFACE

Makingresearchonproject,asapartofthecurriculumoftheM.B.AprogramoftheAnnamalai

University,theresearch&consequentreportonitallowsthestudentstopracticallymakemar

ketresearchandstudyrealworkenvironment.

Thispracticallydevelopsafeelingaboutthedifficulties&challengesinthebusinessworld.On

lytheoryknowledge does not important to complete education, practical experience

must accompany theoretical knowledgetoaddmeaningtoeducation.

Lastly, I have tried my level best to prepare the best informative report.

VIKRAM MALI


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ACKNOWLEDGEMENT

Itisalmostinevitabletoincurindebtednesstoallwhogenerouslyhelpedbysharingtheirinval

uabletimeandrichexperiencewithme,withoutwhichthisprojectwouldhaveneverbeenacc

omplished.

It is my pleasant duty to express my thank to MBA PROGRAMME, NIS ACADEMY,

AHMEDABAD and MY DIRECTOR Mr. AJAY SHAD for giving me the opportunity of

doing General Training and Project work as a special subject and provides such a

wonderful platform to represent ourselves as MBA students.

I will fail in my duty if,Ido not acknowledge the help of the F A C U L T Y R U J A S U T A R I A fortheirvaluableguidanceandencouragement.

Last but not the least I am thankful to my family, friends and faculty members who

helped me in preparing my project work.


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EXECUTIVE SUMMARY

Rural Finance consistsof Informal & Formal sector. Fore.g.Of formal sector of finance

include banks: Project, & contract Farmer schemes Reference is often made to micro-

finance. RuralFinance is aset of financial services thatare notlimited tofinance only. There is a

big differencebetween underdeveloped &developed countries. The countries which have

real perCapita income less than a quarter of the per capita income Of the united

statesare underdeveloped countries.There are different features like low per capita

income occupational pattern, heavy population pressure , low rate of capital formation

There are different natural resources in processof economic development in rural India

Like for eg. Land, water resources, fisheries, mineral resources, forests, marine resources,

climate, rainfall & topography.There are different types of infrastructure facilities often

referred towards economic & social development of rural India Like energy, power,

transport. Agriculture helps for the export-import agriculture playing a very important

role in Indian economy. There are different sources of Rural Finance as well as some

Private agencies Sources also. There are some Institutions which provide the finance

sources. There are different different schemes which is provided by government As wel

as bank. There is a need forrural finance. There are key challenges for rural financia

services provisions like systemic risk, market risk, finance risk , etc.


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INTRODUCTION

MEANING OF AN RURAL FINANCE :

Rural finance comprises finance, savings and insurance (or insurance substitutes) in rural

areas, whether provided through formal or informal mechanisms. The word 'finance' tends to

be associated with enterprise development, whereas rural finance also includes savings and

insurance mechanisms used by the poor to protect and stabilize their families and livelihoods

(not just their businesses).

An understanding of rural finance helps explain the livelihood strategies and priorities of the

rural poor. Rural finance is important to the poor. The poorest groups spend the highest

proportion of their income on food typically more than 60% and sometimes as much as 90%.

Under these circumstances, any drop in earnings, or any additional expenditure (health or

funeral costs, for instance) has immediate consequences for family welfare unless savings or

loans can be accessed. Financial transactions are therefore an integral part of the livelihood

system of the poor.

Rural finance consists of informal and formal sectors. Examples of formal sources of finance

include: banks; projects; and contract farmer schemes. Reference is often made to micro-finance. Micro underlines the small loan size normally associated with the borrowing

requirements of poor rural populations, and micro-finance schemes use specially developed

pro-poor lending methodologies. Rural populations, however, are much more dependent on

informal sources of finance (including loans from family and friends, the local moneylender,

and rotating or accumulating savings and finance associations).

Rural Finance is a set of financial services that are not limited to finance only.


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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 whencompared with the per capita real incomes of the United States of America, Canada, and

Australia & Western Europe.Briefly a poor country.Theterm 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 prefers to describe them as Developing economies.The term developing

economies signifies that though still underdeveloped, the process of development has beeninitiated in these countries. Thus, we have two economies developing economies &

developed economies. The World Bank issued in its World Development Report (1991)

classified the various countries on the basis of Gross National Product (GNP) per capita.

Developing countries are divided into: (a) Low income countries with GNP per capita of $580

and below in 1989; 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 theOrganization for Economic Co-operation and development (OECD) and some others have GNP

per capita of more than $ 6,000.


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Definition:

A country which has good potential prospects for using more capital or more labor 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 definition 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.


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RESEARCH METHODOLOGY

PURPOSE OF THE STUDY

1) To study in detail the concept of rural finance.2) To study in detail the implications in Indian context.LIMITATION

1) This project is limited to Rural Sector of India as it is a vast topic.2) This project content data from various banks but the field visit is only conducted

in(SBI).

OBJECTIVES OF THE STUDY

A. To study the concept of rural finance.B. To study the IndianEconomic Scenario.C. To study the Need of Rural Finance.D. To study the Sources of Rural Finance.E. To study the Challenges of Rural Finance.

DATA

COLLECTION

PRIMARY

DATA

SECONDARY

DATA

BOOKS

WEBSITE

BANK


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Characteristics of the Indian Economy as an Underdeveloped

Economy:

A.India is an underdeveloped economy.It is a vast country having an area of 3.3 million sq. km. It has almost 5, 76,000 villages. Thepopulation of India is widely scattered over villages and towns. Nearly 75% of the population

lives in rural & 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 Indian economy, treating it as

one of the underdeveloped but developing economies of the world.

B.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.

C.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 nationa

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


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indeveloped countries is much less than the proportion of population engaged in agriculture in

underdeveloped countries.

D.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

1941-50 has risen to 2.11 per cent during 1981-91. The chief cause of this rapid spurt to

population growth is the steep fall in death rate from 49 per thousand during 1911-20 to 9.6

per thousand in 1990; as compared to this, the birth rate has declined from about 49 per

thousand during 1911-20 to 29.9 per thousand in 1990. 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 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.

E.Prevalence of chronic unemployment and underemployment:In India labor 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 a capacity that the entire labour force is

absorbed.

F.Low rate of capital formation:Other 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 capita

formation in India is less than that of developed countries.


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INDIAN ECONOMIC SCENARIO

Natural 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 favorable 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.

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:-


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Land utilization pattern, 2004-05 (million hectares)

Particulars Area Percent

1. Total geographical area 328.73 --

2. Total reporting area 304 100

3. Barren land not available for cultivation 41.56 13.63

4. Area under forests 68.86 22.6

5. Permanent pastures and grazing land 10.91 3.6

6. Cultivable waste lands, etc. 13.88 4.57

7. Fallow lands 9.76 3.2

8. Net area sown 142.02 46.6

9. Area sown more than once 48.74

10. Total cropped area (8+9) 190.76

Forest Resources:

Forest is 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 68.86 million hectares in 1997-98 which was about 22.6

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.

Water Resources:

India is one of the wettest countries in the world, with average annual rainfall of 1100 m.m.

Indias water policy, since Independence, has mainly concentrated on highly visible large dams,

reservoirs and canal systems, but has ignored minor water works such as tanks, dug wells and

tube wells.


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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

tons of fish in 1988-89, over 1 million tones came from inland fisheries and nearly 2 million

tons 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 tons in 1997-98, comprising 3.0

million tons of marine fishery and 2.4 million tons of inland fishery and is expected to reach

5.6 million tons in 1998-99 with 3.0 million tons of marine fishery and 2.6 million tons of inland

fishery, respectively. During 1998-99, the export of marine products came down to US$ 1,038

million from US$ 1,208 million.

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, finance, 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 & industria

production in a rural area.


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Types of Infrastructural facilitiesoften referred towards economic and social

development of rural India:

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 is Fuel wood, Agricultural wastes, Animal dung

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.

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 forgoods and by doing so; it makes possible large-scale production through division of labor. It is

also essential for the movement of raw materials, fuel, machinery etc., to the places of

production.


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Modes of transport & communication facilities:

Indian Railways:

The most important form of transport system in India is the Indian railways, which is also the

countrys largest single undertaking with a capital investment of around Rs. 15,000 cores. 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

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 opportunitiesfactor 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.

Inland water transport:

Inland water transport is the cheapest mode of transport, for both long and short distances, so

far as the 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.

Communications:

The communication system comprises posts and telegraphs, telecommunication system, broad

casting, television and information services. By providing necessary information about themarkets 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.


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Rural Market Contribution In Total Indian Economy

When you consider a rural market then the measure part of the rural business directly or

indirectly connected with agriculture. In this condition, whenever you study about rura

market you have to consider the impact of agriculture towards Indian Economy.

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 laborers 15

Other non-cultivators 11

Artisans 2

All house holds 100


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However this group of cultivators contain both prosperous and well as marginal cultivators

within itself. This is rural Indias 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:

A. Proprietors of land include feudal tribute gatherers like seminars, rich moneylenders andtraders who acquire large tracts of land and companies or persons who own large

populations.

B. Rich farmers who belong to dominant caste of the area.C. Small peasants or marginal farmers owning uneconomic land holdings.D. Tenant farmers operating on rented lands belonging to large land holders and working on

small uneconomic land holdings.

E. Agricultural laborers who work on lands of landlords and rich farmers.F. Artisans and others, which include the unemployed also.


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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.

Agricultural Production:

The agricultural sector as a whole is estimated to record a real

growth rate of 6.6 per cent during 1998-99. The overall growth in

agricultural production during 1998-99 has been provisionally

estimated at 6.8 per cent, as against a negative growth rate of (-)

5.4 per cent during 1997-98. In spite of the damage caused to the

cotton crop in Punjab by excessive rains and unexpected cyclonic

storms in Andhra Pradesh in October 1998, cotton production was estimated to be higher at

13.3 million bales in 1998-99, as against 11.1 million bales produced in 1997-98. Similarly, the

sugarcane output is expected to touch 282.7 million tons during 1998-99, compared to 276.3

million tons during 1997-98. The production of oilseeds is also likely to be higher at 25.3

million tons during 1998-99, as against 22.0 million tons during 1997-98.

Food grains Production:The production of kharif food grains estimated at 102.5 million tonnes

during 1998 showed a marginal growth of 1.4 per cent over the

production achieved (101.1 million tonnes) in 1997. The Rabifood grains

production for 1998-99 is expected to go up to 98.4 million tonnes

compared to 91.3 million tonnes in 1997-98. The food grains production is estimated to be

200.9 million tonnes in 1998-99 compared to 192.4 million tonnes during 1997-98, recordingan impressive increase by 4.4 per cent (Advance Estimates). During 1998-99, efforts have also

been initiated by various government agencies to double the food production in the next

decade.


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Growth Rate

Crop 2005-06 2006-07 2007-08

Rice 8.4 -4.0% 5.6%

Coarse cereals 1.4% -4.0% 8.4%

Pulses 8.2% -2.7% 10.9%

Food Grains 6.3% -0.6% 6.7%

Agricultural Exports and Imports

AgricultureExports:

The share of exports of agriculture and allied products in the total exports had declined

marginally, from 18.9 per cent during 1997-98 to 17.8 per cent during 1998-99. 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, oil meals,

tea, coffee, unmanufactured tobacco, cashew, spices, fresh and processed fruits and juices,

vegetables and marine products, etc.

Agriculture Imports:

Agricultural imports related to food and other items constituted 5.8 per cent of the tota

imports during 1998-99, 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 1998-99, the volume of agricultural imports aggregated US$

2,409 million, as against US$ 1,678 million during the corresponding period of the previousyear, recording a growth of 43.6 per cent.


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Agricultural markets:

There were 7,062 agricultural regulated markets operating in India, 162 agricultura

commodities considered for grading standards and 3,253 cold storage with capacity of 8.73

million tonnes as on end March 1998. With the introduction of economic reforms, futures

trading were permitted in coffee, cotton, castor oil and jute goods during 1997-98. Earlier

futures trading were permitted in gur, potato, castor seed, pepper, turmeric, etc. Further,

during 1998-99, futures trading were 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 (1998-

99) 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 1994-95 to about Rs.11, 551 crore in 1995-96.

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.


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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 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.

Capital Formation in Agriculture

The falling public investment in agriculture has been a cause for concern because it is crucial

for the development of infrastructure like irrigation, electricity, agriculture research, roads,

markets and communications. Investment in agriculture declined from 1.6 percent of GDP in

1993-94 to 1.3 per cent in 1998-99 (Table 8.24). This decline was due to a fall in public

investment in agriculture from Rs 4,467 crore in 1993-94 to Rs 3,869 crore in 1998-99. There

has, in fact, been a continuous decline in public investment in agriculture from 1994-95 till

1998-99. Although, the declining trend in public investment was halted in 1999-2000, with the

public sector capital formation rising to Rs 4122 crore from a level of Rs 3869 crore in

preceding year, there has not been any improvement in the share of investment in agriculture in

GDP from the preceding years level of 1.3 percent. This calls for a review of our policies

which have led to diversion of scare resources in the form of subsidies for fertilizers, rural

electricity, irrigation, finance and other agricultural inputs, away from the creation of productive

assets.


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Schemes & Facilities from the various banks

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:

COMPOSITE LOAN SCHEME (CLS) - under ARF

A. Borrowers: Rural artisans, handicraftsmen, small entrepreneurs, groups of individuals,partnership firms, co-operative societies, NGOs, etc.

B. Refinance ceiling-Maximum of Rs. 10 lakh per borrower.C. Repayment period -3 to 10 years with suitable need based moratorium not exceeding

18 months.

D.Eligible activities -All manufacturing, processing, and approved service activities.


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INTEGRATED LOAN SCHEME (ILS) - under ARF

A. 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.

B. Refinance Repayment period 3 to 10 years with suitable need based moratorium notexceeding 18 months.

C. Eligible activitiesmanufacturing, processing and approved service activities in thecottage, village and tiny industry sector and modernization/ renovation/ expansion/

diversification of existing units.

Small Road and water Transport Operators SCHEME (SRWTO) -

Under ARF

A. Borrowers Individuals, groups of individuals, including partnership/ proprietary firmsand co-operative enterprises. The borrowers should be from the rural areas and should

utilize the vehicle mainly for transportation of Rural Farm and Non-Farm Products and

inputs and passengers to/ from marketing centers. The borrower or his employee should

possess a valid driving licensed and the vehicle should be duly registered with the Regiona

Transport Authority as public transport vehicle.

B. Refinance ceiling Maximum of Rs.15 lakh per borrowerC. Repayment period 5 years with moratorium of 6 months.D.Eligible vehicles Transport vehicles including Light Motor vehicles, Jeeps, Auto

rickshaws, Water transport units (boats, launches etc.)


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Schemes under pre - sanction procedure

Term Loan to SSI units(through CBs & Scheduled PCBs)

Individuals, Proprietary / Partnership concerns, Private/ Public Limited Companies,

Promotional/ Developmental Organizations, State Level Federations/ Corporations, Joint

Sector Undertakings.

Term Loan to Industrial Co-operatives (through SCBs)

Industrial Co-operative Societies identified as viable/ potentially viable by the State

Government.

Project Finance for Agro-Industries (through CBs, Scheduled PCBs and SCBs)

Borrowers

A. State level corporations such as agro-industries corporations, forest/ tribal developmentcorporations, KVIC/ KVIB, state level cooperative societies/ federations, co-operative

marketing/ processing and industrial societies, joint sector undertakings, registered

societies in KVIC/ KVIB fold.

B. Public/ private limited companies, partnership firms and proprietary concerns.Repayment period: 3 to 10 years with moratorium of 12 months.

Soft Loan Assistance Scheme for Margin Money

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.To set up new units as well as for modernization/

renovation/ expansion/ diversification of existing units even if the units were not initially

refinanced by the Bank.

Eligibility criteriaRefinance 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.


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FARM SECTOR FINANCE SCHEME:

Refinance Assistance for financing farm mechanization

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.

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.

(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.


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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.

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 Agriclinic

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.

Scheme for financing farmers for purchase of land for Agricultural purposes

In response to the Honorable 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 financing purchase of land forestablishing 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 landincluding purchase of land under the scheme

and (ii) Share croppers / Tenant farmers are eligible.


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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 launchedby 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.

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 way of higher yields and productivity through private sector participation

in technology transfer and extension services.


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Scheme for Rural Finance

SBI Caters to the needs of agriculturists and landless agricultural laborers 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

finance 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 agricultura

projects.

The Bank has achieved tremendous growth in agricultural finance. As on March 2001, it has

covered 48 lakh farmers with loan outstanding of Rs. 14962 crores, accounting for 28% of tota

agricultural advances of Public Sector Banks (PSBs)

A)Crop LoanSBI 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.

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.

B)Produce marketing loan schemeThe 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.

Eligibility-All categories of farmers - Small/Marginal (SF/MF) and others - are eligible.


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The Bank verifies the following aspects before granting the loan:

1)Service Area Approach.

2) Stocks at the borrowers' residence/go down.

3) Stock statement for valuation.

Loan Amount Security to be furnished

Upto Rs.25,000 DPN, DPN take delivery letter Hypothecation of

stocks.

Above Rs.25,000 Hypothecation of stocks. Mortgage o

properties.

C)Kisan finance card schemeThe SBI offers the Kisan Finance Card for farmers under short-term finance introduced as per

RBI/NABARD guidelines, providing a running account facility to farmers to meet their

production finance need and contingency needs.

Eligibility-

All agricultural clients having good track record for the last two years are eligible for the Kisan

Finance Card.

Minimum finance limit: Rs.3000/- New borrowers requiring crop loans can also avail this

product. Finance 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

Finance Card is valid for 3 years, subject to annual review.


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D)Agriculture term loansSBI 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.

E)Land Development SchemesThe SBI gives finance 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), lying of pipe lines, installing drip/sprinkler irrigation system and lift irrigation

system.

F)Minor Irrigation SchemesSBI provides finance for creating new source of irrigation by exploiting underground water,

energisation of wells, conveyance of water, judicious use of available water, etc.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), lying of

pipe lines, installing drip/sprinkler irrigation system and lift irrigation system.


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G)Farm Mechanization SchemesSBI provides finance for purchase of farm equipment and machinery for agricultura

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

H)Financing of Combine Harvesters: A farmer should own minimum 8 acres of irrigated land. Non-farmer entrepreneurs capable of utilizing combine harvester for custom hiring work

are also eligible.

Combine harvester should be utilized for a minimum of 1000 hours of productive work in ayear.

Unit cost will include cost of combine harvester and accessories, if any.I) Kisan Gold Card Scheme:Eligibility-

Farmers with excellent repayment record for at least past 5 years. New farmers are not eligiblefor the product.

Purpose-Investment finance for which term loans are ordinarily sanctioned. The scheme also

includes major family expenditures like marriages and education of children.

J)Land Purchase Scheme:Eligibility-Small/marginal farmers, tenants, share-croppers owning less than 5 acres of

irrigated / 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.


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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 installments. 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 finance 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 finance limit of Rs 46 crore.


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Various Finance Scheme Offered From Government:

Maharashtra Rural Finance Project (MRCP) - India - out line of the project

features and Impact

General: Access to finance has long been considered a major poverty alleviation strategy in

India. A variety of finance-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 finance

component. Under this programme, nearly 53 million families below poverty line were

assisted with bank finance 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 likeprovision of supply rather than demand-led finance, loans not tailored to meet needs of

individual enterprises, lack of aftercare support, and weak linkages lack of supervision over

loan utilization 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 overdue and high

transaction cost for the banks in financing the rural poor became a matter of concern for the

policy-makers.

Maharashtra Rural Finance Project (MRCP)

Against this backdrop the MRCP supported by IFAD was evolved as an innovative approach to

poverty reduction with peoples 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 peoples 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


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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-

GovernmentalOrganization (NGOs) since 1994-95 was designed with the principal goal.

Finance-Cum-Subsidy Scheme for Rural Housing.

Introduction:- The Finance-Cum-Subsidy Scheme for Rural Housing has been conceived for

rural households having annual income up to 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 unto Rs.10, 000/- per eligible household in plain areas and Rs.11, 000/- inhilly/difficult areas.

Loan unto Rs."2"0,000/- per household. Sanitary latrine and smokeless chulha are integral part of the house.

Achievement: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 Finance 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.


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Council for Advancement of Peoples Action & Rural Technology (CAPART):

Recognizing the need for an organization 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 Peoples Action and Rura

Technology (CAPART), a registered society under the aegis of the Department of Rura

Development, by merging two autonomous bodies,

Namely, Peoples Action for Development of India (PADI) and Council for Advancement of

Rural Technology (CAPART).

The main objectives of the CAPART are:-

A. To encourage, promote and assist voluntary action for the implementation of projectsintending enhancement of rural prosperity.

B. To Strengthen and promote voluntary efforts in rural development with focus on injectingnew technological inputs;

C. To act as a catalyst for the development of technology appropriate for rural areas.


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NEED FOR RURAL FINANCE

RURALFINANCE: NEED & IMPORTANCE

Rural finance is important to the poor. The poorest groups spend the highest proportion of

their income on food typically more than 60% and sometimes as much as 90%. Under these

circumstances, any drop in earnings, or any additional Expenditure (health or funeral costs, for

instance) has immediate consequences for family welfare unless savings or loans can be

accessed. Financial transactions are therefore an integral part of the livelihood system of the

poor.

Rural finance consists of informal and formal sectors. Examples of formal sources of finance

include: banks; projects; and contract farmer schemes. Reference is often made to micro-

finance. Micro underlines the small loan size normally associated with the borrowing

requirements of poor rural populations, and micro-finance schemes use specially developed

pro-poor lending methodologies. Rural populations, however, are much more dependent on

informal sources of finance (including loans from family and friends, the local moneylender,

and rotating or accumulating savings and Finance associations).


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LENDING TO THE RURAL POOR: THE ISSUE

At the 1997 Micro-Finance Summit, James Wolfensohn, President of the World Bank, said that

micro-finance is not the single answer to poverty, but an important One. This widely held

belief underpins much of the interest in rural finance, although it has some important

shortcomings some researchers argue that the better-offof the poor are usually those served

by micro-finance, since the ultra-poor seldom join micro enterprise loan programmes. The

poorest benefit more from small savings schemes, consumption loans, or emergency funds

Rural finance would not be the focus of so much development effort was it not for widespread

market failure (i.e. failure to provide the services people want) in rural financial services in

developing countries. Reasons for market failure include:

The lender does not know the default risk of each potential borrower and to

Collect this information is costly;

It is costly to ensure that the potential borrowers take those actions which make loan

repayment more likely;

It is difficult and costly to enforce repayment; and Rural Finance and Natural Resources

the cost of providing services to the rural poor is high because the rural poor are located in

remote areas, want to borrow small amounts, are often illiterate, lack experience of banks,

and lack collateral, all of which necessitate the development of tailored approaches.

IMPLICATIONS OF THIS FOR AGRICULTURAL ACTIVITIES

All these types of market failure apply to lending to the agricultural and other natural

resource-based sectors in developing countries. Lack of information on the risk of default is

particularly germane to agricultural enterprise. Farmers do not keep records, so it is difficult

for them to produce the information that might convince a bank of their finance worthiness

Rural market transactions are largely informal, so it is difficult for the bank to collect

independent information on prices. Farming is clearly a risky business because of weather,

pests and market fluctuations and it is difficult for a bank to assess the degree of risk

associated with particular activities. The rural poor do not have track records, or referees who


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will vouch for their competence and reliability. Making sure that farmers stick to their business

plan, using loans as intended, and carrying out tasks to schedule, is also costly, although this

might make loan repayment more likely. Enforcing repayment is also difficult this requires

monitors who know when crops are sold, or agreements with merchants to pay the farmer net

of what s/he owes the bank, or effective penalties such as seizure of assessor prosecution.

Farmers rarely have collateral acceptable to banks.

They may not have clear title to the land they farm, or even if they do, rural land markets may

not function well enough for land to be considered a bankable asset. Poor farmers,

moreover, rarely have other bankable assets. They might own a bicycle, and have a store half

full of grain, but were a bank to seize such assets the cost of doing so would probably exceed

their sale value. The poorer the farmer, the less are his/her chances of borrowing from the

formal sector. Women, particularly poor women, face even more problems in obtaining

finance. Land title, where it exists, is usually held by men. Women often have little control

over other factors of production, particularly for the bankable cash cropping activities. In

some countries women may only borrow in the names of their husbands, if at all, and literacy

rates for poor women are almost always lower than those for men. The irony is that numerous

studies show that women tend to repay loans more reliably than men. Numerous projects,

government schemes and NGOs engage in loan programmes targeted at the poor. Some of

these work well, but the majority are unsustainable because of high and subsidized costs, and

high rates of default. The poor depend overwhelmingly on the informal sector.


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FINANCIAL MECHANISMS USED BY RURAL POOR

The poor borrow from family and friends. This is an extremely important source of finance, but

is inadequate in situations where everyones need arises at the same time (purchasing

seasonal inputs, or replanting late because the rains have failed).Moreover, locally obtained

funds are very vulnerable to covariate risk, i.e. risk that affects everyone, such as crop failure.

The poor borrow from moneylenders, shopkeepers, pawnbrokers and merchants. Interest

rates are usually high and loans are taken out for short periods. Such lenders Rural Finance are

usually based within the community they know their clients; they know their clients

businesses; and they can apply pressure from within the community to ensure that loans are

repaid. Sometimes the loan will be guaranteed (loans from pawnbrokers for instance), or

linked to crop sales. The latter may be on extremely poor terms for the farmer. Green loans

are made in Zimbabwe, for instance, against a standing crop. The farmer takes such a loan

because s/he is desperate for cash before the harvest (when there is a general shortage of

cash in the farming community), but in return relinquishes all his/her right to the crop on a

specified plot. In India, fish Merchants lock fishermen into lifelong indebtedness, by making

loans that are repaid through fish sales at pre-arranged (below market) prices. For many rural

people, borrowing from these sources is a last resort, but even though the cost of borrowing

may be high, such lenders provide an important source of cash in rural communities where

there are few, if any, alternatives. Where finance is not available, households may have to

deplete their asset base (spend savings, or sell jewels or livestock) or go without essential

items, including food. The discussion of finance tends to direct attention towards productive

finance, i.e. finance for the purpose of generating income. However, poor people often need

mechanisms to protect their livelihoods: they need finance to overcome consumption

shortfall, or to smooth consumption patterns; and they need insurance or insurance

substitutes to protect fragile and high-risk livelihoods. Multi-peril crop insurance schemes

targeted at the poor have generally been expensive failures. This is largely because of high


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administrative costs and political difficulty in charging fair premiums and enforcing impartial

loss adjustments. Rural populations use insurance Substitutes, such as:

Savings (money or assets, including livestock, which can be accessed at times of Need);

Risk-reducing behavior (for example, low-yielding but drought-tolerant crop choices); and

Investment in social capital (for example, developing ties with peers or relatives to increase

access to potential assistance in times of need).

The demands that can be made on extended family simultaneously help poor people protect

their livelihoods and make them less reliable in repaying formal loans, because family

demands on cash resources may be unpredictable, but socially unacceptable to resist. Savings

mechanisms are very important to the poor. By foregoing current consumption, future options

are preserved for consumption or investment. Savings a type of insurance and the poor may

prefer to save rather than to invest. Precautionary savings increase household resilience and

the capacity to absorb risks. So strong is the need for safe-keeping of income (from their own

personal consumption, consumption by others, or from theft), that in some countries people

will actually pay money-guards to look after their savings (which do not accumulate interest)

Rotating and accumulating savings and finance associations are another mechanism used by

poor people to establish a savings habit (regular contributions are made by all members to a

common fund, and the pooled resources are then disbursed to each member in turn). Yet once

again, the ultra-poor are excluded from such associations because they cannot commit to

regular payments. Rural Finance and Natural Resources These mechanisms are important and

provide insight into why farmers pursue certain strategies. Reducing risk may be more

important than increasing yields; accumulating savings may be more important than

investment; and farmers may keep cattle as savings, rather than as an income-generating

venture in their own right.


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SOURCES OF RURAL FINANCE

Sources of Rural Finance

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

area.Commercial banks, b. the state bank, c. co-operative societies & land mortgage banks d.

agricultural finance Corporation.Private agencies giving 93% of the total finance requirements

in 1951-52 and institutional sources including government giving for only 7% of the total

finance 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

institutional 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 (1981), estimated

that the share of private agencies had further slumped to about 37% & share of institutiona

finance jumped to 63% break up was 30% of co-operative & 29% of commercial banks.

Government & Reserve Bank of India is supporting commercial bank & co-operatives to meetthe growing demand for agricultural finance


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Private Agencies Sources

Money lenders:

Though there are drawbacks, moneylenders are by far the most important source of

agricultural finance 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 finance was available to

agriculturists and to place 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 & commission 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 importantfrom 3.3 percent in 1951-52 to 14.5 percent in 1961-62 but

declined to 8.8 percent in 1981?


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Institutional sources of finance

These are the funds made available by co-operative societies, commercial banks, & regiona

rural banks & state governments also. The need for institutional finance arises because of the

weakness or inadequacy of private agencies to supply finance to farmers. Private finance is

defective because:-

A. It is based on profit motive &, therefore, it is always exploitative.B. It is very expensive and is not related to the productivity of land.C. It does not flow into most desirable channels and to most needy persons.D. It is not available for making agricultural improvementsand much of the necessary

improvements are not undertaken as funds are not available for long periods at low rates

of interest

E. 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 finance was the real

solution to the emancipation of small farmers from the clutches of the money-lenders. But

within a short period, number of problems has surfaced such as:

A. There was no coordination between different agencies operating in the same area and, as aresult, there was multiple financing, over-financing in some areas and under-financing in

others.

B. Despite the adoption of lead bank scheme and district finance plans, the different agenciesoften failed to formulate and develop meaningful agricultural finance programmes in given

blocks and districts.

C. Despite guidelines issued by RBI, different agencies adopted different procedures andpolicies 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 tothe same person against the same securities. Ultimately, there were heavy overdue.


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E. The major problem faced by lending institutions, particularly co-operatives, is the mostunsatisfactory level of overdue. The ration of overdue 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 finance institutions, both co-operative and commercial banks, is

in a very sad state in several parts of the country.

Co-operative finance societies

It is the cheapest and the best source of rural finance. The rate of interest is low. Since 1951

the co-operative finance movement has started helping the farmers in a big manner. During

1989-90 there were about 88,000 primary agricultural finance societies. The stranglehold

of the moneylenders on the peasants is not met by the co-operatives. Besides, the smal

farmers find it difficult to meet all their finance requirements from the co-operatives.

Primary Agricultural Finance 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 protects them from the clutches

of moneylenders. The organization of the co-operative finance for short period may be briefly

outlined as follows:

A co-operative finance society, commonly known as the primary agricultural finance society

(PACS) may be started with ten or more persons, normal belongs 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 agricultura

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 finance societies has been


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rising steadily. In 1950-51, it advanced loans worth Rs.23 crores; this rose to Rs. 200 crores in

1960-61, and to Rs. 4200 crores in 1988-89.

Financial Strength of PACs.:

To make all primary agricultural societies viable and ensure adequate and timely flow of co-

operative finance 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 farmers 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 overdue.

PACs 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 finance societies in specified areas normally extending to

the whole district menace 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 finance societies on the other.


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State Co-operative Bank:

This bank forms the apex of the co-operative finance 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 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

finance movement but also in promoting other co-operative ventures and in extending the

principles of co-operation.

Problem of overdue to Co-operative finance :

A highly distressing fact of co-operative finance is the heavy overdue of co-operative finance

institutions, now estimated between Rs.9, 000 crores to Rs.10, 000 crores. According to the

RBI study team on overdue lack of will and discipline among cultivators to repay loans was

the principal factor responsible for the prevalence of overdue of co-operatives. Defective

lending policy pursued by co-operatives, the apathy of management in taking quick action

against recalcitrant members and absence of favorable climate were other contributing

factors.Apart from these commonly factors normally responsible for a high level of overdue,

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 finance

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 surrendered to such demands to write off the debts in a matter of extreme concern, as


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it hampers the recovery of dues from the farmers. The problem of loan overdue is a matter of

serious concern, as it affects the recycling of funds and finance expansion on one hand and

economic viability of the lending institutions, specially the co-operatives and RRBs, on the

other.

Land development banks

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 finance 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 to 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 farmers 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. 770 crores between 1950-51 and 1989-90. 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 finance 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.


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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 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.

Over dues Problems:-

Mounting overdue in most of the LDBs have crippled the structure badly, in recent years.

Overdue at the level of primary land development banks have been put between 42 to 44

percent. Overdue 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 finance operations. To some extent, the banks

themselves are to be blamed for this predicament due to faulty loaning policies, inadequate

supervision, over-utilization of loans, ineffective measures for recovery etc. Which have

contributed to the deterioration in recovering the loans?

Commercial Banks

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 finance societies. Financing of investment in agriculture is a major aspect of the

farm finance activities of banks Finance needs of service units providing services for

warehousing, processing, marketing, transporting, and repairing of tractors etc.


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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 finance 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 loans account for 15 to16%. Region wise, southern region

accounts for the bulk of finance disbursed by commercial banks viz. 52% of the total finance

extende

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