INTERNATIONAL JOURNAL OF MANAGEMENT RESEARCH …ijmrr.com/admin/upload_data/journal_samriti 2.pdfINTERNATIONAL JOURNAL OF MANAGEMENT RESEARCH ... ancillarisation, ... form and the

March 2012/ Volume 2/Issue 3/Article No-2/394-411 ISSN: 2249-7196

*Corresponding Author www.ijmrr.com 394

INTERNATIONAL JOURNAL OF MANAGEMENT RESEARCH

AND REVIEW

EFFICACY OF NABARD IN INDIAN RURAL DEVELOPMENT

Samriti Jain*1, Divya Mathur

1

1Assistant Professor, Chandigarh Business School, Chandigarh Group of Colleges, Mohali,

Punjab

ABSTRACT

This paper reviews the contribution of National Bank for Agriculture and Rural

Development (NABARD) in rural development and roles it has been playing in propping

up this sector in terms of the policy, research and its implementation. We focused on

effectiveness of innovative schemes introduced by NABARD for the infrastructural

development for improving the quality of life in rural areas. Micro financing under

NABARD schemes has been analyzed using a case study. The approach taken was to trace

the growth of micro-finance at national level, looking explicitly at the role of NABARD in

the configuration of the sector and then the particular SHGs funded by the banks.

Secondary research includes the analysis of policy documents, overview of national level

institution of microfinance along with literature reviews.

Keywords: NABARD, Rural Development, Micro Finance, RIDF.

1. INTRODUCTION

The Indian economy is estimated to have registered a growth rate of 7.4 per cent in 2009-10

as against 6.7 per cent witnessed in 2008-09, while the global economy is expected to dip

from 3.0 per cent in 2008 to (-) 0.6 per cent in 2009. At the sectoral level, the growth rates

during 2009-10 over 2008-09 are expected to be 8.5 per cent for services, 9.3 per cent for

industry and 0.2 per cent for agriculture. National Bank for Agriculture and Rural

Development (NABARD) was established as an apex rural development bank in the year

1982, through an Act of Parliament, to provide refinance for agriculture, allied activities,

small scale industries, cottage and village industries, rural artisans and crafts in an

integrated manner. It provided promotional grants to VAs/ NGOs for various programmes

such as mother units, ancillarisation, and common facility centre’s, training including skill

up gradation and entrepreneurship development, marketing, etc., under exclusive women

and other schemes from its "Rural Promotion Corpus Fund". Rural Innovation Fund is

established to enable State Governments to contribute to the share capital of co-operative

credit institutions and for completion of rural infrastructure development projects such as

major and minor irrigation projects, soil conservation, rural roads and bridges, SHGs (Self

Help Groups) through PRls (Panchayati Raj Institutions) etc.

Through assistance of Swiss Agency for Development and Cooperation, Rural

Infrastructure Development Fund was created to complete ongoing rural infrastructure

projects together with rural drinking water schemes, soil conservation, rural market yards,


Copyright © 2012 Published by IJMRR. All rights reserved 395

rural health centres and primary schools, mini hydel plants, shishu shiksha kendras,

anganwadis, and system improvement in the power sector.

As a developing country, like India ought to be an ideal environment for micro-finance

programmes seeking to reach the poor and attain financial sustainability. Microfinance is

regarded as a central poverty alleviation strategy and a means of deriving economic growth

and employment of small, micro & medium enterprises (SMME). A complex set of best

practice models, and a network of active members and support of rural people in organized

form and the active support of banks and NABARD in India have emerged to support a

thriving industry.

1.1 Objectives of NABARD

NABARD was established in terms of the Preamble to the Act, "for providing credit for the

promotion of agriculture, small scale industries, cottage and village industries, handicrafts

and other rural crafts and other allied economic activities in rural areas with a view to

promoting IRDP and securing prosperity of rural areas and for matters connected therewith

in incidental thereto".

The main objectives of the NABARD as stated in the statement of objectives while placing

the bill before the Lok Sabha were categorized as under:

1. The National Bank will be an apex organization in respect of all matters relating to

policy, planning operational aspects in the field of credit for promotion of Agriculture,

Small Scale Industries, Cottage and Village Industries, Handicrafts and other rural crafts

and other allied economic activities in rural areas.

2. The Bank will serve as a refinancing institution for institutional credit such as long-term,

short-term for the promotion of activities in the rural areas.

3. The Bank will also provide direct lending to any institution as may approved by the

Central Government.

4. The Bank will have organic links with the Reserve Bank and maintain a close link with

in.

1.2 Major Activities

1. Preparing of Potential Linked Credit Plans for identification of exploitable potentials

under agriculture and other activities available for development through bank credit.

2. Refinancing banks for extending loans for investment and production purpose in rural

areas.

3. Providing loans to State Government/Non Government Organizations

(NGOs)/Panchayati Raj Institutions (PRIs) for developing rural infrastructure.

4. Supporting credit innovations of Non Government Organizations (NGOs) and other non-

formal agencies.

5. Extending formal banking services to the unreached rural poor by evolving a

supplementary credit delivery strategy in a cost effective manner by promoting Self Help

Groups (SHGs)



6. Promoting participatory watershed development for enhancing productivity and

profitability of rain fed agriculture in a sustainable manner.

7. On-site inspection of cooperative banks and Regional Rural Banks (RRBs) and iff-site

surveillance over health of cooperatives and RRBs.

8. Help cooperative banks and Regional Rural Banks to prepare development action plans

for themselves Enter into MoU with state governments and cooperative banks specifying

their respective obligations to improve the affairs of the banks in a stipulated timeframe

9. Help Regional Rural Banks and the sponsor banks to enter into MoUs specifying their

respective obligations to improve the affairs of the Regional Rural Banks in a stipulated

timeframe

10. Monitor implementation of development action plans of banks and fulfillment of

obligations under MoUs.

11. Provide financial assistance to cooperatives and Regional Rural Banks for establishment

of technical, monitoring and evaluations cells.

12. Provide financial support for the training institutes of cooperative banks.

13. Provide training for senior and middle level executives of commercial banks, Regional

Rural Banks and cooperative banks.

14. Create awareness among the borrowers on ethics of repayment through Vikas Volunteer

Vahini and Farmer’s clubs

15. Provide financial assistance to cooperative banks for building improved management

information system, computerisation of operations and development of human resources

NABARD at a Glance

Table 1.1 Comparative Annual Assessment of NABARD

(Years 2008-2009 & 2009-10) (Rs. Crores) Sources of Fund 2010 2009 Net

Accretion

Uses of Funds 2010 2009 Net

Utilisation

Capital 2000 2000 0 Cash and Bank

Balances

9628 13975 -4347

Reserve &

Surplus

10674 9535 1139 Collateralized

Borrowing and

Lending Obligation

0 0 0

NRC(LTO) Fund 14417 14016 401 Investment in

a)GOI Securities

b) ADFC Equity

c) AFC Equity

1991

15

1

1555

15

1

436

0

0

NRC

(Stabilisation)

Fund

1566 1555 11

Deposits 505 482 23



Bonds and

Debentures

20004 23704 -3700 d) SIDBI Equity

e) AICI Ltd.

f) NCDEX Ltd. &

MCX Ltd.

g) Nabcons

h) Mutual

Fund/VCF

i) Treasury Bills

j) commercial Paper

48

60

15

5

905

0

744

48

60

6

5

1005

157

143

0

0

9

0

-100

-157

601

Borrowings from

GoI

147 354 -207

Loans and Advances

Production

&Marketing Credit

Conversion of

Production Credit

into MT Loans

Liquidity Support

MT & LT Project

Loans

LT Non Project

Loans

Other Loans

RIDF Loans

Co-finance

24073

0

20

35742

199

131

60255

16896

20

2591

33335

252

48

45616

7177

-20

-2571

2407

-53

83

14639

Borrowings

fromCommercial

Banks

500 500 0

Foreign Currency

Loan

494 498 -4

Certificate of

Deposits

379 1816 -1437

Commercial

Paper

2680 181 2499

Collateralised

Borrowing and

Lending

Obligation

215 0 215



84 94 -10

Term Money

Borrowings

762 244 518 (Net of Provision)

RIDF Deposits 59869 47023 12846 Fixed Assets 235 247 -12

STCRC Fund 9622 4622 5000 Others Assets 2141 2107 34

Other Liabilities 5685 4279 1406

Other Funds 6773 7367 -594

Total 136292 118176 18116 Total 136292 118176 18116

Source: NABARD

The Financial Statement of NABARD is reflecting its effective contribution in rural sector,

there is a comparative growth in its reserves, funds and deposits where as the debentures

and borrowing have dropped down in 2009-10 .Liability towards commercial Bank

borrowings were paid off. Investment in agriculture and allied activities, industrial sector

and service sector were increased. During the year 2009-10, the total Working Funds

increased by 15.3% from Rs.1,18,176 crore to Rs.1,36,656 crore. The increase was due to

net inflow of RIDF Deposits (Rs.12,846 crore), STCRC Fund (Rs.5,000 crore),

Commercial Papers (Rs.2,499 crore) and Term Money Borrowings (Rs.519 crore). The

borrowings of NABARD (Rs.25,703 crore) constituted 18.48 per cent of its working funds

as on 31 March 2010.

2 .LITERATURE REVIEW

Lack of liquidity and poor management qualifications are the main constraints to the

restructuring of enterprises. Only an efficient financial market can overcome this bottleneck

Tackling all the tasks facing the financial sector in the process of transformation poses a

great challenge for the transition countries. For the rural poor in India, formal financial

services would enable them to maximize returns on their surplus, smooth their

consumption, and reduce their vulnerability to risk. However, their financial service

needs—which include consumption credit and cash savings (Duggal, 2002)— are seldom

met due to systemic problems in the financial sector and monsoon risk.

An important research agenda is to understand the dynamics of financial innovation. There

are both winners and losers from the introduction of new financial services and

opportunities for trade. Losers may include incumbent local financial service providers who

may stand to lose monopoly rents or market share in the face of increased outside

competition (Rajan and Zingales 2003; Platteau 1997), or those who might fear for the

collapse of local informal insurance mechanisms (Scott 1976). Just as common have been

the calls by organized groups of borrowers or activists for political and economic



authorities to intervene to regulate allegedly exploitative or harmful activities of informal

moneylenders or landlords.

A precondition for the development of rural financial systems is a stable political and

macro-economic environment. Uncertainty about the future political situation of a country

and its economic development, particularly inflation, are unfavourable conditions for

investments. Moreover, policymakers should give clear signals in favour of rural

development, especially the development of inclusive financial institutions in rural areas.

Improved road infrastructure, telecommunication possibilities and security in rural areas are

essential in reducing transaction costs of financial services in rural areas, but also in

promoting trade linkages between rural and urban regions and in attracting other economic

actors.(InfoResources, September 2008).

There are already several very useful surveys and edited volumes of articles covering

important aspects of the now vast literature on rural financial markets and household

consumption behavior in the face of risk and uncertainty. A non-exhaustive list of key

survey references might include Von Pischke et al. (1983), Binswanger and Rosenzweig

(1986), Hazell et al (1986), Bell (1988), Gersovitz (1988), Besley (1994), Stiglitz (1994),

Townsend (1995), Morduch (1995), Meyer and Nagarajan(2000), Barry and Robison

(2001), Banerjee (2003), Fafchamps (2003), Dercon (2004), Armendariz de Aghion and

Morduch (2005) and the relevant chapters in Bardhan (1989), Basu (1997), Deaton (1997),

Ray (1998), and Bardhan and Udry (1999). While considerable overlap with these earlier

studies is inevitable in the present work, we have attempted to set this chapter somewhat

apart by focusing in more depth on relatively new developments in this fast growing field of

empirical and theoretical research. We have also attempted to place more emphasis than

earlier studies on studying the important role of financial intermediaries, competition and

regulation in shaping the changing structure and organization of rural markets, ather than

simply focusing on household strategies and bilateral contracting.

3 . METHODOLOGY

The approach taken was to trace the development of micro-finance at national level looking

specifically at the role of National Bank for Agriculture and Rural Development in the

configuration of the sector and then the particular SHGs funded by the banks. Secondary

research included the analysis of policy documents, overview of national level situation of

microfinance and also few case studies, and literature reviews. Primary research relating to

the microfinance overview and issues related to it was undertaken in Madhya Pradesh,

India. In-depth key informant interviews were held with SHG members and the bankers and

senior officials of National Bank for Agriculture and Rural Development.

4. SECTOR WISE DEVELOPMENT INITIATIVES BY NABARD IN 2009-10

NABARD is initiating innovative policies, practices and guidelines for rural financing for

providing credit facilities to Farm & Non Farm sectors by potential-linked credit plans

annually for all districts. They provide facilities for training, for dissemination of

information and the promotion of research including the undertaking of studies, researches,



techno-economic and other surveys in the field of rural banking, agriculture and rural

development.

4.1.1 Farm sector

The Village Development Programme had been implemented in 953 villages of 437

districts across 25 States, as on 31 March 2010. Under the Tribal Development Fund,

financial assistance of Rs.236.19 crore was sanctioned for 79 projects, benefiting 63,113

tribal families. As on 31 March 2010, Rs.543.62 crore had been sanctioned for 191 projects

benefiting 1,56,330 families. Other developmental initiatives taken by the NABARD to

enhance production and productivity of rural farm sector comprises 59 watershed projects

in 14 states, enlarged agriculture area to 8.71 lakh hectares which goes to cumulative

financial commitment of Rs.958 crore. A “Pilot project for augmenting productivity of lead

crops/activities through adoption of sustainable agricultural practices” was launched in 900

villages at the national level with the aim of augmenting income of the farmers through

enhanced production and productivity of lead crops/activities.

The corpus of the Farm Innovation and Promotion Fund was enhanced from Rs.5 crore to

Rs.50 crore and 17 proposals in 11 states with financial assistance of Rs.155.37 lakh were

sanctioned during the year. Cumulatively, 78 projects with financial support of Rs.618 lakh

have been sanctioned, of which 25 projects with financial assistance of Rs.104 lakh have

been completed. The corpus of Farmers’ Technology Transfer Fund was also enhanced

during the year from Rs.25 crore to Rs.50 crore and 151 diverse and innovative proposals

for transfer of technologies were sanctioned a grant assistance of Rs.488 lakh in 22 states.

During the year, 16,590 Farmers’ clubs were launched taking the total number of clubs to

54,805 covering 1, 04,648 villages in 587 districts.

4.1.2 Rural Non-Farm Sector

Under the Rural Innovation Fund 155 innovative projects were sanctioned, taking the

cumulative number to 252. An amount of Rs.17.70 crore was sanctioned taking the

cumulative commitment to Rs.38.37 crore, as on 31 March 2010. An amount of Rs.10.69

crore was disbursed during the year for 252 projects taking the cumulative disbursements to

Rs.17.99 crore.The District Rural Industries Project was extended to 106 districts by March

2007 and 43 of them phased out by 2007-08, on successful implementation. During 2009-

10, GLC flow in 42 districts covered under various phases reached Rs.675.99 crore and

refinance availed of was Rs.11.11 crore. In all, 45,701 units were set up generating

employment for 1.42 lakh persons. The ‘Scheme for Strengthening of Rural Haats’

introduced in 1999 in DRIP districts was extended to all districts, village bazaar boards,

SHGs, NGOs and to PRIs/PACS, during the year. The quantum of assistance was increased

to Rs.5 lakh from Rs.3 lakh and coverage extended to include permanent structure/s as per

local requirements and a grant support of Rs.298.72 lakh was sanctioned to 87rural

haats.116 Women Development Cells were supported in 58 RRBs, 55 Co-operative banks

and three SCARDBs, with disbursement of Rs.40.39 lakh to address gender issues in credit

and support services. Under Marketing of Non-Farm Products of Rural Women and

Assistance to Rural Women in Non-Farm Development schemes, grant support of Rs.6.92



lakh and Rs.17.56 lakh, respectively, were released.. To enable rural artisans/craftsmen 263

marketing events/ exhibitions, were supported with grant assistance of Rs.146.13 lakh

realize remunerative prices and to establish marketing linkages, 119 rural marts in 22 States

were sanctioned grant assistance of Rs.133.91 lakh. Swarojgar Credit Cards (SCC) with

credit limits of Rs.411.05 crore were issued for facilitating hassle-free availability of credit

for investment and working capital requirements of small/micro-entrepreneurs.

Table 4.1 Purpose wise Disbursements under investment Credit during 2009-10

Purpose Amount…in lacs Percentage in Total

Agriculture

Minor Irrigation 49673 4.1

Land Development 30367 2.5

Farm Mechanization 171466 14.3

Plantation & Horticulture 37740 3.1

Allied to Agriculture

Poultry 29682 2.5

Fisheries 5462 0.5

Dairy Development 72535 6.0

Storage/Market Yard 18722 1.6

Wasteland Development (Forestry) 646 .01

Bio-gas Plant 396 0.03

NFS

Seed Project 346599 29

Self Help Group 317356 26.4

SC/ST action plan 230 0.02

SGSY 15150 1.3

Others 98971 8.2

AH(others) 5297 0.4

Agribusiness & Agriclinics 616 0.1

Total 1200908 100

Source: NABARD

In table 4.1, the total disbursements of Rs.1,20,0,908 lacs under investment credit during

2009-10,is stating very progressive contribution of NABARD in agriculture and allied

agriculture sectors where it is observed that farm mechanization under agriculture



disbursement is sharing 14.3% of total disbursements ,this contribution is eliciting its

efforts in the technological growth of the rural sector also. The self help group programmes

which is sharing 26.4 % of total is its key work area as it has encouraged people to employ

themselves by finding out prospective work areas which can help them in improving their

quality of life.

5. THE GENESIS OF RURAL INFRASTRUCTURE DEVELOPMENT FUND (RIDF)

Rural Infrastructure Development Fund (RIDF) was created in NABARD as a follow-up to

the announcement made in the Union Budget, 1995-96. RIDF was created with an initial

allocation of Rs.2, 000 crore with the objective of providing term loans at concessional

rates to state governments for financing rural infrastructure projects. RIDF Scheme with its

localized approach, wider all- India coverage, operational flexibility, social focus,

community’s involvement in planning, designing, managing and execution of works, etc

Table 5.1 Sector Wise Projects and Amounts Sanctioned (As on 31st March)

Sector RIDF XV(2009-10) RIDF 1 to XV(Cumulative)

Rs.Crore

No. of

Projects

Share in total

amount(%)

Amount Share in total

amount(%)

No. of

Projects

Share in total Amount

amount(%)

Share in

total

amount(%)

Irrigation 16697 42.8 4145.27 26.52 215718 53.55 33341.83 32.15

Rural

Bridge

1110 2.85 2383.39 15.25 13450 3.34 11534.78 11.12

Rural

Roads

4907 12.58 4581.9 29.32 73046 18.13 33747.17 32.54

Social

Sector

14816 37.97 2513.91 16.08 73142 18.16 13610.76 13.12

Power 12 0.03 149.59 0.96 750 0.19 1980.19 1.91

Agri-

Related

Sector

1473 3.77 1855.76 11.87 26700 6.63 9503.27 9.16

39015 100 15629.82 100 402806 100 103718 100

Source: NABARD

Fig 5.1 Sector Wise Share in Amount Sanctioned under RIDF (As on 31st March-2010)

Source: NABARD



During the year 2009-10 (RIDF-XV), 39,015 projects were sanctioned involving aggregate

loan amount of Rs.15, 629.82 crore according to table 5.2. The cumulative number of

projects rose to 4,02,806 involving loan amount of Rs.1,03,718 crore. Of the total amount

sanctioned during the year, rural roads accounted for 29 per cent, irrigation projects 27 per

cent, social sector projects 16 per cent, bridges 15 per cent and agri-related 12 per cent.

Disbursements during 2009-10 under the ongoing tranches amounted to Rs.12, 387.54

crore. Additionally, an amount of Rs.6, 500 crore was disbursed to the National Rural

Roads Development Agency (NRRDA), taking the total disbursements during the year to

Rs.18, 887.54 crore. The cumulative disbursement as on 31 March 2010 stood at Rs.68,

439.74 crore, (excluding Rs.18,500 crore under Bharat Nirman). The position of year-wise

disbursements under RIDF excluding NRRDA under Bharat Nirman.

As per phasing of the projects, under various tranches (RIDF I to XV), state governments

had a total pool of projects of Rs.1,03,718 crore as on 31 March 2010. The state-wise

analysis of ratio of disbursements to the sanctions, as per approved phasing, under tranches

RIDF I to IX have been closed. The Sector Wise Share in Amount Sanctioned under RIDF

as on 31st March 2010 is presented in Fig.5.1.

5.1 ORG MARG STUDY

Social Audit of RIDF supported Gokul Gram Yojana by ORG-MARG was carried out.

Social Audit refers to a process of measuring and improving the social performance of a

project. It attempts to assess the people's interest, priorities and perceptions to make the

implementation process open and accountable to the people.

The Madhya Pradesh government is going to embark upon an ambitious Gokul Gram

Yojana to transform the 51 thousand odd villages of Madhya Pradesh. The scheme would

be launched from september , 25 , the birth anniversary of Pandit Deen Dayal Upadhyaya ,

from Chitrakoot. The scheme aims at providing better education , sanitation , health ,

drinking water , irrigation facilities besides preserving environment and ensuring efficient

administration by putting to optimum use the locally available resources in the villages

selected under the scheme.

Selection of Gokul Gramm- Under the Gokul Gram Yojana five villages would be selected

in each district depending on their specific conditions.. The number of villages may exceed

if necessary. The villages would be selected by district collectors in consultation with the

Minister -in-charge, Member of Parliament and the MLAs. The norms of selection would

be set at district level but the basis of selection would be soci-economic condition of the

villages. These villages would be a model and source of inspiration for development of

other villages.

Under the Gokul Gram Prakalp the villages selected to be developed as Gokul Grams are

humming with development activities and are poised for a metamorphosis. Nayagon, about

15 kilometer from Gwalior, is buzzing with various activities for its all round development.

A total of 60 works have already been completed in a very short span of time, which



include construction of two tanks at a cost of Rs. 15 lakh and a C.C. road at a cost of Rs.

five lakh.

The population of the village is1326 which includes 714 men and 612 women. The total

240 families living in the village include 15 of general category, 28 scheduled castes and

remaining belong to Saharia tribe. The village has 150 cows, 150 buffalos and 400 goats.

There are two biogas plants and three Naped and vermicomposts each. No case of partition,

demarcation and mutation is pending. At present about one and half-quintal milk goes to

cities for sale. In winter season the village produces about two and half quintal milk. Three

beneficiaries have been selected under Godan Yojana. When asked Shri Parihar commented

that so far development was concentrated in urban areas, but now villages would be

developed through Gokul Gram Prakalp.

5.1.1 Impact - Perceived benefits from the project

There is no drinking water problem; however some shortage of electricity is there. Teachers

in the school are regular and punctual and mid-day meal is served properly. A woman

sanitary worker has been appointed and each household contributes Rs. ten to pay her.

Sense of personal hygiene has improved and 15 families have constructed individual

latrines. The sub block level meetings of gram sachivalay are held on third Tuesday every

month. Meetings of block level officers are held every Monday and the ANMs and health

workers conduct medical check-up and immunization the same day. The village has three

self-help groups of which a self-help group of women has recently started production of

joss sticks. The other two groups are being provided revolving fund. The time is not very

far off when Naya Gaon would be self-contained and no longer dependent on its needs.

6. RURAL INNOVATION FUND (RIF)

NABARD-SDC RURAL INNOVATION FUND (RIF) National Bank for Agriculture and

Rural Development (NABARD) in association with Swiss Agency for Development and

Cooperation (SDC) has constituted the "NABARD-SDC Rural Innovation Fund (RIF) " to,

inter alia, support innovative projects in Farm, Non-Farm and Micro-Finance Sectors

leading to creation of livelihood opportunities for the poor.

An illustrative list of areas is given below:

• Biological & Engineering measure/techniques that improve productivity of water.

• Design of economic and efficient water harvesting structures.

• Efficient water use systems: low cost micro-irrigation technology/ micro tube irrigation

technology, etc.

• Diversification of farm activities - agro-forestry, silvipasture, agro-horticulture and animal

husbandry etc.

• Organic farming - bio-fertilisers and pesticides.

• Development of location specific crops and agronomic practices.

• Extension of technology- Agri-clinics, Agro Service Centres, e-Service Centres, including

the feasibility of commodity trading/ Village Knowledge Centres.



• Community farming.

• Contract farming.

• Insurance products for rainfed agriculture.

• Banking through SHGs, VWCs and user teams, Joint Liability Groups, etc.

• Portfolio approach to lending - basket of activities.

• Development of small hand operated/ power operated tools/ implements that will support

system diversification in rain fed farming/ crop husbandry.

• Support for design, development, plan and adoption of traditional efficient water

harvesting systems.

• Support for documentation of farmers' innovations/indigenous technological knowledge.

• Innovative rainwater harvesting for rural dwellings.

• Rural energy from biomas, agri waste.

• Techniques for increasing value of crop residues and non-crop biomass.

• Community regulation of distribution and use of waste and energy.

• Storage devices for agricultural and rural products.

• Innovative methods of managing Common Property Resources.

• Materials and designs for rural roads.

• Rural sanitation and waste disposal.

Rural Innovation Fund (RIF) is a fund designed to support innovative, risk friendly,

unconventional experiments in Farm, Non-Farm and micro-Finance sectors that would have

the potential to promote livelihood opportunities and employment in rural areas.

6.1 Guiding principles of RIF

• The activities must have the rural poor in their focus and must be innovative, experimental

and demonstrative in nature leading to reliability and commercial viability.

• The activities funded may involve development of new products, processes, prototypes,

technology, patenting and extension support.

• Appropriate action research and studies contributing to better understanding of rural

development issues, policy and process implementation may be undertaken.

7. MICRO-FINANCE AS A MAINSTREAM DEVELOPMENT INTERVENTION

Microfinance sector has navigated a long journey from micro savings to micro credit and

now entered the field of micro insurance, micro remittance and micro pension. The focus of

this programme has been on training and capacity building of partners, promotional grant

assistance to Self Help Promoting Institutions (SHPIs), Revolving Fund Assistance (RFA)

to MFIs, equity/ capital support to MFIs to supplement their financial resources and

provision of 100 per cent refinance against bank loans provided by various banks for

microfinance activities.

The Self Help Group (SHG)-Bank Linkage Programme, in the past eighteen years, has

become a well known tool for bankers, developmental agencies and even for corporate



houses. With the small beginning as Pilot Programme launched by NABARD by linking

255 SHGs with banks in 1992, the programme has reached to linking of 69.5 lakh saving-

linked SHGs and 48.5 lakh credit-linked SHGs and thus about 9.7 crore households are

covered under the programme, envisaging synthesis of formal financial system and

informal sector.

7.1 The models of micro-finance In India

In this section, the data for the year 2009-10 along with a few preceding years have been

presented and reviewed under two models of microfinance involving credit linkage with

banks :

(i) SHG - Bank Linkage Model: This model involves the SHGs financed directly by the

banks viz., CBs (Public Sector and Private Sector), RRBs and Cooperative Banks.

(ii) MFI - Bank Linkage Model: This model covers financing of Micro Finance Institutions

(MFIs) by banking agencies for on-lending to SHGs and other small borrowers.

A total refinance support of Rs 3,680.70 crore was extended by National Bank for

Agriculture and Rural Development towards long-term and short term agriculture in 2010-

11, taking the cumulative refinance support in the state to Rs 21,745.55 crore. Out of this,

refinance assistance of Rs 980.14 crore was extended towards investment credit aiding

capital formation in farm and non-farm sectors, registering a 31.5 per cent rise over the

previous year, Dr V Tagat, Chief General Manager for National Bank for Agriculture and

Rural Development (Nabard), Karnataka, told reporters.

7.2 Promotional grant assistance under Micro Finance by NABARD

Credit flow to agriculture for 2009-10 was targeted Rs.3, 25,000 crore, the banking system

disbursed Rs.3,66,919 crore (provisional) surpassing the target by 12.9 per cent. Within the

banking system, Commercial banks, Co-operative banks and Regional Rural Banks

disbursed Rs.2,74,963 crore, Rs.57,500 crore and Rs.34,456 crore, respectively sharing 74.9

per cent, 15.7 per cent and 9.4 per cent of the total credit flow during 2009-10.

Table 7.2 Agency-wise Ground level Credit Flow

(Rs. crore)

Agency 2005-06 2006-07 2007-08 2008-09 2009-10 (@)Growth

Rate (%)

2005-10# 2008-09*

2009-10*

Co-op. Banks 39404 42480 48258 45966 57500 8.7 (-)4.7

25.1

R RBs 15223 20435 25312 26765 34456 21.0 5.7

28.7

Comm. Banks 125477 166485 181088 228951 274963 20.8 26.4

20.1

Others 382 0 0 226 0 - -

-

Total 180486 229400 254658 301908 366919 18.5 18.6

21.5

@: Provisional; #: Compound Annual Growth Rate; *: Percentage change over previous year.

Source: NABARD



The table 7.2 is highlighting the credit flow in rural sector through different agencies .The

growth rate in credit flow has increased up to 25.1 % in Co-operative banks ,28.7% in RRB’s

and 20.1% in Commercial Banks and the overall growth is 21.5 %.the data is depicting the

five years scenario of credit flow which is emphasizing the increase in the participation of

agencies by increasing their credit Investment in rural sector.

8. SELF HELP GROUP PROGRAM

Table 8.1 The SHG Bank Linkage Program me spearheaded by NABARD in the

Microfinance Sector in India has yielded very significant results

S.

No

Particulars Cumulative as

on 31 March

2009-10

1 Total number of SHGs savings linked with banks 69.53 lakh

2 Out of total [of which] exclusive Women SHGs 53.10 lakh

3 Out of total [of which] -SGSY SHGs 16.94 lakh

4 Total number of SHGs credit linked during 2009-10 15.87 lakh

5 Out of total [of which] exclusive Women SHGs credit linked 12.94 lakh

6 Out of total [of which]-SGSY SHGs credit linked 2.67 lakh

7 Total number of SHGs having loans outstanding as on 31

March 2010

48.51 lakh

8 Of which exclusive Women SHGs 38.98 lakh

9 Of which-SGSY SHGs 12.45 lakh

10 Estimated number of of families covered upto 31 March 2010 97 million

11 Total savings amount of SHGs with banks as on 31 March

2010

6198.71 crore

12 Out of total savings of exclusive Women SHGs 4498.66 crore

13 Out of total savings of SGSY SHGs 1292.62 crore

14 Total amount of loans disbursed to SHGs during 2009-10 14453.30 crore

15 Out of total loans disbursed to Women SHGs 12429.37 crore

16 Out of total loans disbursed to SGSY SHGs 2198.00 crore

17 Total amount of loans outstanding against SHGs as on 31

March 2010

28038.28 crore

18 Out of total loans o/s against Women SHGs 23030.36 crore

19 Out of total loans o/s against SGSY SHGs 6251.08 crore

20 Average loan amount outstanding per SHG as on March 2010 57795

21 Average loan amount outstanding per member as on 31 March

2010

4128

total number of banks submitted Mis

22 Commercial banks [public] 27

23 Foreign banks + Private banks 19

24 Regional Rural Banks 81

25 Cooperative Banks 318



26 Small Industries Development Bank of India 1

Capacity building of partner institutions

27 Number of programmes conducted during 2009-10 6804

28 Number of participants covered during 2009-10 2.54 lakh

29 Cumulative number of participants Trained upto March 2010 24.55 lakh

30 Grant support during the year 2009-10 9.93 crore

31 Cumulative fund support upto March 2010 45.02 crore

Refinance support

32 Refinance to banks during 2009-10 3173.56 crore

33 Cumulative refinance released upto 31.3.2010 12861.65 crore

Source: NABARD

The SHGs have to be assessed in terms of Group dynamics like cohesion, vibrancy, goal-

oriented action, participation of members, democratic decision and collective leadership.

The appraiser has to see whether the group is functioning, actually as a group, where the

members have come together, whether it is for obtaining loan from bank or the group sees

other purposes, what is the group discipline and whether it is sustainable.

The basic principles on which the SHGs function are:

i. The members of the groups should be residents of the same area and must have an

affinity. Homogeneity of relationship could be in terms of caste/ occupation/ gender or

economic status (which is critical).

ii. Savings first, credit thereafter

iii. SHGs should hold regular meetings

iv. SHGs should maintain record of financial and other transactions

v. They should have norms regarding membership, meetings etc.

vi. Group leaders should be elected by members and rotated periodically

vii. Transparency in operations of the group and participatory decision making

viii. The group should decide rates of interest on loans

ix. Group liability and peer pressure to act as substitutes for traditional collateral.

9. FACTS & ISSUES IN CREDIT EXTENSION TO RURAL SECTOR THROUGH

NABARD

The provision of micro-finance to the poor has been limited by two factors, the first of

which is the perceived risk of lending to people who lack access to adequate collateral and

credit references, and the second is the high transaction costs involved in administering

small deposits and loans. Over the past two decades the major innovations have been in the

development of models of financial provision, which overcome these constraints. It is found

that more than 95 % SHGs are formed by the women members. The SHGs formed by the

women are managed well than the male SHGs. There is more than 98 % recovery ratio of

loans in case of women SHGs, where as it 90 to 95% in case of male members. It is to be



noted that more than 60% SHG under the SGSY scheme, wherein government has provided

subsidy, have failed to repay the loans to the financing agencies, whereas the SHGs without

subsidy schemes have more than 95% recovery. More than 50 % women SHGs have

utilized the funds in entrepreneurial activities, whereas less than 20% SHGs have started the

entrepreneurship activities. The women SHGs are well managed than the male SHGs. The

women SHGs have higher saving rate and regular payment habits; on the other hand the

men SHGs are most mismanaged. Higher rate of interest i.e. 12% to the SHG groups by the

banks, on the other hand the banks get the refinance from the NABARD at 6%.For taking

loans the banks insist collateral securities. For making documentation for loans the SHGs

have to register the loan documents, wherein they have to pay the stamp duty on the loan

amount. The most of the members are unaware about the benefits of SHGs. The

Cooperative Banks and Cooperative societies have played more powerful role in the

development of SHG and micro finance than the commercial banks. There are several

reservations about micro-credit. First there is the critique that microcredit may not be an

effective pro-poor strategy; second there are doubts about the ability of microcredit

institutions to juggle the twin goals of institutional sustainability and poverty alleviation.

Finally there are concerns that minimalist models such as microcredit are not sufficient to

support the diverse needs of the informal economy.

10. SUGGESTIONS

The development agencies should promote innovation in farm, non-farm sector which

contribute overall rural development. The innovation may be about system, managerial,

business process or technical related issues. The credit should be extended on commercial

basis, but should build program that enhance capacity of the participating members. Micro

Enterprise/SHGs should undertake any legitimate economic activity and try to increase the

income level as a micro enterprise. Only mature groups who are undertaking savings and

lending activities regularly and smoothly - need to be covered for promotion of micro

enterprises. A checklist needs to be prepared for identification of such groups. The special

training programmes for Entrepreneurship development & skill building and exposure and

role of technology should be organised.The facilities for linking to local and distant markets

and help in providing backward and forward linkages should be provided by the NGO,

Government or NABARD. Special Provision for business counseling and capacity building

should be undertaken by Self Help Group Promoting Institutions (SHPI) and micro enterprise

promotion agencies (MEPAs) partners. Resource mapping of the region covering physical,

financial and human resources, feasibility studies for identification of economic activities

that are technical and financially viable in the region. Adopting participatory methods for

helping the group members in selecting right type of economic activities (e.g., participatory

assessment of what comes in and what goes out of a village).Many of the cooperatives are

getting refinance form NABARD to lend at affordable rate however, this situation may not

sustain in future. In due course the Cooperative Act should be amended and the entire

cooperative banking would be brought under one umbrella and the problem of dual control

would be solved. Low cost credit can only be given when low cost deposits are available.

Today banks are running after collecting deposits. Some cooperatives are facing reputation



risk in collecting deposits from public however; government should intervene and help

cooperatives in meeting the credit needs of the poor and the unserved population and bring

them under the ambit of banking services. Most people who are deprived from the banking

services are forced to resort to non-institutional expensive and exploitative credit, paying

very high interest rates. If such people were targeted they would comprise a good market for

the cooperatives. There is a need for identifying such target group and meeting their needs

for attaining better inclusions in future. Government’s role should be improving the fairness,

transparency and efficiency of the cooperatives institutions and coordinate efforts to

revitalize a powerful institution in future. Involvement of participating member in any type

of organization is the most crucial factor in success of the entity. Peer pressure in SHG acts

as catalyst in repayment of a loan. Subsidized loan tends to higher failure rate. It therefore

suggests that loan should be granted on commercial basis, but the bank or developmental

agency should support business process of the enterprise that increase efficiency and

effectiveness of the social enterprise like cooperatives/SHGs. It should also design & deliver

training program that motivate members to involve in the activities of the parent

organization. Therefore credit should be extended to group of people incorporating a social

formal or informal institute rather than an individual.

REFERENCES

Duggal B, Singhal A. Extending Banking To The Poor In India. Social Initiatives Group,

ICICI Bank. 2002.

Skees J, Hazell P, Miranda M. New Approaches to Crop Yield Insurance in Developing

Countries. 1999.

EPTD Discussion Paper No. 55. Washington, D.C.: International Food Policy Research

Institute.

Hess U, Richter K. Stoppa A. Weather risk management for agriculture and agribusiness in

developing countries”, in Dischel, Robert, Climate Risk and the Weather Market, Financial

Risk,ed. 2002.

Management with Weather hedges, London: RiskBooks.

Mahajan V. ”Issues in Sustainability of Micro-finance Institutions—A Practitioner's

Viewpoint“., Presented at the Workshop on Sustainable Micro Finance - Challenges Facing

the MFIs. January 15, 2001.Lucknow,Uttar Pradesh, India.

Hazell PBR. Carlos Pomareda, and Alberto Valdes Crop insurance for agricultural

development : issues and experrience. Baltimore: Published for the International Food

Policy Research Institute by the Johns Hopkins University Press. 1986.

Bell C. "Credit Markets, Contracts, and Interlinked Transactions", in H Chenery and T.N.

Srinivasan (eds.), Handbook of Development Economics. Vol. I., Amsterdam; London and

New York: Elsevier Science, North-Holland, 1988; 381-423.

Bell C, Srinivasan TN, Christopher U. Rationing, Spillover, and Interlinking in Credit

Markets. The Case of Rural Punjab, Oxford Economic Papers, 1997; 49 (4):557-585.



Besley T. Savings, Credit and Insurance", in Jere Behrman and T.N. Srinivasan (eds.),

Handbook of Development Economics, Vol. III, 1994; 2123-2207.

Binswanger HP, Mark R, Rosenzweig. Behavioural and Material Determinants of

Production Relations in Agriculture. Journal of Development Studies, 1986; 22 (3):503-

539.

www.nabard.org

The Financial Express

www.ruralfinance.org

www.woccu.org

INTERNATIONAL JOURNAL OF MANAGEMENT RESEARCH …ijmrr.com/admin/upload_data/journal_samriti 2.pdfINTERNATIONAL JOURNAL OF MANAGEMENT RESEARCH ... ancillarisation, ... form and the

Documents