MICRO-CREDIT AND RURAL

FINANCIAL SERVICES- HOW CAN

IT CHANGE AGRICULTURE

Presented By-
Nishant Kumar(65)
Rajeev Gudi(71)
Shiv Shakti Kumar(77)
SEC-B, MRM
KIIT School Of Rural Management, Bhubaneswar
10/10/09
•Introduction
•Need for finance in Agriculture
•Segments of agriculture advances
•Present status of rural credit
•What is micro-credit
•Advantages of Micro-credit
•Different side of Micro-credit
•Conclusion

10/10/09
 Introduction
•India is the home of one third of the world’s poor; official
estimates range from 26 to 50 percent of the more than one billion
population

•More then 60 percent of the population depend on agriculture for

there livelihood directly or indirectly

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

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

10/10/09
Contd.

Which force the farmer to take the money at a very high

interest rate from the local moneylender

Which drag the farmer in to the vicious circle of poverty

Leads to…….

 Low productivity
 Farmer Suicide.

10/10/09
 Conditions required to develop
agricultural sector
• Secure access and proper use of land and water
• Better access to lucrative markets
• Optimum productivity level (know-how & tools)
– Good yield, low cost for competitiveness and
sustainability
• Risk management tools
– Crop insurance, diversified sources of income, production
contracts, risk sharing, etc.

10/10/09
• To Increase productivity

• To Improve conditions for sales

• For Diversification of family income

• Minimizing the risk

10/10/09
 BALANCED DEVELOPMENT FOR
SUSTAINABLE AGRICULTURE
M
T I
M E R T
C C I I
A S G
H
A K A
R N T
I I
K P
Q O
E U I N
E
T T
S

A
SECURE ACCESS TO INPUTS
and PROPER USE of L
LAND and WATER

10/10/09
 Short term production credit for crop production through crop loan

 Medium and long term investment credit -minor irrigation, farm

mechanization, land development, horticulture, animal husbandry,
agri-clinics, rural godowns, etc.

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

exports

10/10/09
 During last three year pace of disbursement to agriculture
has picked up and more than doubled crossing a figure of
200,000 cr during 2006-07
 Study have shown that despite various measure around
50% of family availing credit formally
 Share of bank credit has been around 65% of the total
credit made available to agriculture
 In case of small /marginal the cover is 25% which is the
major chunk of agriculture population

10/10/09
 A micro-credit is a small loan given to poor people to
encourage self-employment projects that can generate
income and raise their standard of living. The entire
system of micro-credit and its associated schemes such as
insurance and saving accounts is known as micro-
finance.

10/10/09
 Evolution of Micro-credit in India
 Microfinance has been in practice for ages ( though
informally).
 Legal framework for establishing the co-operative movement
set up in 1904.
 Reserve Bank of India Act, 1934 provided for the
establishment of the Agricultural Credit Department.
 Nationalization of banks in 1969
 Regional Rural Banks created in 1975.
 NABARD established as an apex agency for rural finance in
1982.
 Passing of Mutually Aided Co-op. Act in AP in 1995.

10/10/09
Types of Micro-credit providers in
India
a) Domestic Commercial Banks:
Public Sector Banks;
Private Sector Banks & Local Area Banks
(b) Regional Rural Banks
c) Co-operative Banks

(d)Unregistered NBFCs
(e) Registered NBFCs, Co-operative Societies

10/10/09
 Advantages of Micro-credit

•An economically poor individual gain strength as part of a

group.
•Reduces transaction costs for both lenders and borrowers.
•Lenders have to handle only a single account instead of a
large number of small-sized individual accounts.
•Borrowers cut down expenses on travel (to & from the
branch and other places) for completing paper work and on
the loss of workdays in canvassing for loans.
•Collateral free loans to poor farmers.

10/10/09
 Access to credit encourages:
• Increased productivity:
– by financing purchases of inputs
– by financing purchases of equipment
• Improved conditions for sales:
– by avoiding dependence on market intermediaries who usually
finance small-scale farmers
– by making it possible to stockpile harvests in order to sell them
later when prices are better
(warehouse receipt financing or inventorie crédit)
• Diversification of family income:
– new crops or types of livestock
– added value (processing)
– new activities (small business, craftwork, etc.)

10/10/09
 The crucial question remain, has the society accepted
suicide at the hidden cost of micro-credit
 Does it create wealth

 There is a gigantic difference between earning a great deal

of money and being rich

 Is micro-credit exploitive, in terms of rate of interest ?

Does it create a debt trap is

 Is micro-credit sector plays safe allowing only success

story to get hyped

 Is the motive of the sector only to drive the money lender

away
10/10/09
 Do the negative impact micro-credit outweighed the
positive

 Evidence indicate that micro-credit is less about

eradicating poverty and more about sustaining a financial
service industry that thrives on poverty.
 Micro-credit is designed to keep the saving low such that
the credit can move uninterrupted and keep the poor
trapped

10/10/09
• Effort to improve credit flow especially to small, marginal, tenant
and share cropper
• Measure to increase credit absorption capacity by focusing on
irrigation, transformation, marketing and other post harvest
facility
• KCC has become the most convenient and popular mode for
production credit. It needs to be provide to all eligible potential
borrowers
• Besides KCC other card like, Bhoomiheen grameen card, general
credit card and kisan gold credit card, need to be popularized for
meeting need of all category of farmer

10/10/09
 Contd.

• In order to attain double digit growth in eleventh five year

plan agriculture sector should have a growth of at least
4%,instituutional credit especially investment credit has to
geared up to meet the target growth.

10/10/09
Thank you!

THANK YOU!

10/10/09