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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=13657765924994487/28/2019 Vikram Grand Project
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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