Nabard to refinance scheme to fund small, marginal farmers

Written by Sanjay Jog | Mumbai | Updated: Dec 5 2009, 03:50am hrs
When the growth in agriculture and decrease in agricultural loan accounts continue to be matters of great concern with the banking sector, the state-run National Bank for Agriculture and Rural Development (Nabard) has revised a scheme for financing of joint liability groups (JLGs) of small farmers (SF)/marginal farmers (MF)/tenant farmers/oral lessees and share croppers. Nabard would provide some incentives to banks on an annual basis for the first three years by way of promotional grants for forming, nurturing and financing JLGs. Banks may, at their discretion, use the services of suitable agencies for undertaking the above interventions that are in the nature of activities under the business facilitators model. Nabard would also extend need-based promotional support training, exposure visits, experience sharing, for banks staff. The group mode of financing aims to contain the increasing transaction costs while dealing with large number of small value accounts.

Nabard chairman Umesh Chandra Sarangi told FE that Nabard would provide 100% refinance assistance to all banks in respect of their lending to JLGs.

A JLG is an informal group comprising 4-10 individuals coming together for the purpose of availing bank loan on individual basis or through group mechanism against mutual guarantee. Generally, the members of a JLG would engage in a similar type of economic activity in the agriculture and allied sector. The members would offer a joint undertaking to the bank that enables them to avail loans. JLG members are expected to provide support to each other in carrying out occupational and social activities.

Rural branches would explore the formation of crop/commodity specific and activity-specific JLGs that would facilitate pooling of demand for seeds, raw materials and other inputs as well as provide an opportunity for sorting, grading and aggregating their produce and negotiate for better prices. Implementation of the scheme is likely to be periodically reviewed in forums like branch managers meetings, in view of the implications on National Food Security.

Nabard official said continued and hassle-free access to credit coupled with support from the state government and other extension and promotional agencies in terms of forward and backward linkages would facilitate graduation of these target groups. We visualise that specialised JLGs of farmers in potential areas would start contributing positively to the agriculture value chain and thereby enhance agriculture production and productivity besides ensuring food security to the vulnerable sections. Similarly, JLGs of micro-enterprises in the clusters including for activities allied to agriculture, such as dairying will have gainful employment and livelihood opportunities. Thus, expansion and intensification of JLGs would be, we think, an effective strategy for enhancing the slender financial margins of farmers.

JLG scheme was revised as inspite of increasing credit flow to the agricultural sector in the past four years at the aggregate level, serious concern has been expressed in various quarters that the number of agricultural loan accounts with the banking sector has not been keeping pace, but has actually stagnated and at times has even decreased in many states. This, coupled with the increasing average loan size per loan account, directly points to inadequate credit access/flow to small, marginal and tenant farmers, who constitute 82% of the farmers in the country.