Rural Marketing_Financial Services in Rural Area

Subject: Marketing Application

Topic: Financial Services in Rural Area
Learning Mode: Handouts followed by Group Discussion
Tasks:
Browse through the content given in this handout to:
Identify the need for redit
List various sources of redit available in rural !arket
"inancial saving products in #ural
ontent covered in this docu!ent is taken fro! various sources$ It is like a %&uick reference doc' for understanding
financial services in #ural area$ "or further reading you are encouraged to refer the following resources$
URLs:
($ http:))www$nabard$org)creditfunctions)introduction$asp
*$ http :))www$authorstrea!$co!)+resentation)priyanka$sangolgi,*-.--/,rrural,banking,nabard,agriculture,
co!!ercial,bank,kissan,card,!icro,finance,rbi,narsi!ha,co!!ittee,entertain!ent,ppt,powerpoint)
0$ http:))www$scribd$co!)doc)(1(.203.)4griculture,reditn,#ole,of,o!!ercial,Banks
2$ http:))www$wisegeek$co!)what,is,a,land,!ortgage$ht!
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Rural Marketing_Financial Services in Rural Area
De!and for rural credit in India is esti!ated at #s$ (5205666 crore 7#ural Marketing 2004, Wisdom Publications8$
9!all scale far!ers are the primary potential beneficiaries of agricultural credit$ But they are !ostly unaware of
e:isting loan facilities and other necessary infor!ation such as na!es of lenders5 their location5 loanable a!ount5
interest rates5 duration)ter! of loan5 and !ode of repay!ent$
redit supply in rural)agriculture sector in India is scarce because of the following reasons:
;u!ber of defaulters in case of rural credit has re!ained consistently high
orruption and bureaucracy have prevented the !oney issued by govern!ent for rural areas fro! reaching
the!$
Lenders find it difficult to lend !oney to a s!all far!er as he does not possess !uch property to keep as
guarantee against loan$
There is no such body that holds co!!and on the far!ers and can negotiate with !oneylenders on behalf
of the far!ers$
<nderesti!ating potential of rural sector as an invest!ent destination$
NABARD has taken various initiatives in the recent past for Financial Inclusion
Financial Inclusion
"inancial Inclusion is the process of ensuring access to financial services and ti!ely and ade&uate credit where
needed by vulnerable groups such as weaker sections and low inco!e groups at an affordable cost$=
> Definition by NABARD
Click here http://www.naar!.or"/#inancial$inclusion.asp to know the !etails.
%ho are not to e part o# &inclusi'e( "roup)
;o 9avings
;o Insurance
;o assets
;o bank account
;o access to !oney advice
;o affordable credit
Rural Finance is a set o# #inancial ser'ices that are not limite! to cre!it only.
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Rural Marketing_Financial Services in Rural Area
Note: The word 'credit' tends to be associated with enterprise development, whereas rural finance also includes
savings and insurance mechanisms used by the poor to protect and stabilie their families and livelihoods !not "ust
their businesses#$
Financial ser'ices in rural #inance inclu!e:
Loans
9avings
Invest!ent
Guarantee funds
#e!ittance services
Inventory credit
Trader finance
Insurance
Importance o# Financial *ransactions:
The poorest groups spend the highest proportion of their inco!e on food > typically !ore than /6? and
so!eti!es as !uch as 16?$
<nder these circu!stances5 any drop in earnings5 or any additional e:penditure 7health or funeral costs5 for
instance8 has i!!ediate conse&uences for fa!ily welfare > unless savings or loans can be accessed$
"inancial transactions are therefore an integral part of the livelihood syste! of the poor$
#ural finance consists of:
Infor!al 9ources
"or!al 9ources
+,amples
Formal sources o# cre!it: anks- pro.ects- an! contract #armer schemes. %eference is often made to micro&
credit$
In#ormal sources o# #inance / Loans #rom #amily an! #rien!s0 the local moneylen!er0 an! rotatin" or
accumulatin" sa'in"s an! cre!it associations1
Note: 'icro underlines the small loan sie normally associated with the borrowing re(uirements of poor rural
populations, and micro&credit schemes use specially developed pro&poor lending methodologies$
#ural populations5 however5 are !uch !ore dependent on infor!al sources of finance$
SOURCES OF RURAL FINANCE
Depending upon the re&uire!ent and purpose5 the funds needed by the Indian far!ers can be categori@ed into three
types:
9hort ter! loans , (* to (- !onths
Mediu! ter! loan > 0 to - years
Long ter! loans > (- to *6 years
234R* *+R5 L4AN2 are issued to far!ers for the purpose of cultivation or do!estic e:penses such buying seeds5
!anure and fodder for cattle5 etc$
5+DIU5 *+R5 L4AN2 are given to far!ers to purchase cattle5 agricultural i!ple!ent and to !ake i!prove!ents
on land$
L4N6 *+R5 L4AN2 are given to far!ers to purchase land5 !ake i!prove!ents on land5 pay,off old debts and
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Rural Marketing_Financial Services in Rural Area
purchase useful !achinery for long,ter! usage$ These loans are for co!paratively long periods since the far!ers
can repay the! gradually over a nu!ber of years$
The +ri!ary 4gricultural redit 9ocieties 7+49s8 provide !ainly short,ter! loans5 and Land Develop!ent Banks
7LDBs8, these are now called o,operative 4gricultural and #ural Develop!ent Banks 74#DBs8, provide long ter!
and !ediu! ter! loans to the agricultural sector$
The two credit sources available to the far!ers are:
($ Institutional sources consist of the co,operatives and co!!ercial banks including #egional #ural Banks
7##B98$
*$ Non/Institutional or pri'ate sources include !oney lenders5 traders5 co!!ission agents and landlords$
;on,institutional sources or private sources of far! credit refer to credit supplied by !oneylender5 landlords and
traders$ Money lending is often co!bined with far!ing by the village !oney lenders as they lend to far!ers for both
the productive and non,productive purposes charging high rate of interest$
They enter larger than actually borrowed su!s through false pretences by obtaining pro!issory notes and give no
receipts for repay!ents and often deny such repay!ents$ They co!!it !any other rogueries and have been
responsible for !any of the ills of Indian agriculture$
Their !ain interest has been to e:ploit the far!ers and grab their lands$ Institutional credit has been introduced to
stop such activities of the !oney lenders
INSTITUTIONAL SOURCES OF FINANCE
4t present three agencies supply institutional finance to far!ers$ They are:
7. Co/operati'es
8. Commercial anks
3. RRBs
4gricultural credit to far!ers and refinancing to above,!entioned banks is provided by the ;ational Bank for
4gricultural and #ural Develop!ent 7;4B4#D85 which is the ape: institution for agricultural credit at the national
level$ #BI as the central bank of the country plays a crucial role by giving over,all direction to rural credit and financial
support to ;4B4#D for its operations$
R4L+ 4F RBI IN RURAL CR+DI*
9ince it was set up in (1025 #BI has been taking keen interest in e:panding credit to the rural sector$ 4fter ;4B4#D
was set up as the ape: bank for agriculture and rural develop!ent5 #BI has been taking a series of steps for
providing ti!ely and ade&uate credit through ;4B4#D$
9cheduled co!!ercial banks e:cluding foreign banks have been forced to supple!ent ;4B4#Ds efforts,through the
stipulation that 26percent of net bank credit should go to the priority sector5 out of which at least (3 percent of net
bank credit should flow to agriculture$
Besides5 it is !andatory that any shortfall in fulfilling the 26 percent target or the (3 percent sub,target would have to
go to the corpus #ural Infrastructure Develop!ent "und 7#ID"8$#BI has also taken steps in recent years to
strengthen institutional !echanis!s such as recapitali@ation of #egional #ural Banks 7##Bs8 and setting up of local
area banks 7L4Bs8$
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#e!e!ber:
MI#B,"I;4;C is a novel approach to Dbanking with poor= as they atte!pt to co!bine lower transaction costs and
high degree of repay!ents$ The !aEor thrust of these !icro,finance initiatives is through the setting up of 9elf Help
Groups 79HGs85 ;on,Govern!ental organi@ations 7;GBs85 redit <nions etc$
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Rural Marketing_Financial Services in Rural Area
9ost 4##ices :#or sa'in"s0 the #i"ure is small1
FI94;7"4#MC#9G8 #CDIT 4#D 4nother notable develop!ent in recent years is the introduction of Fisan redit
ards 7F8 in (113,11$The purpose is to facilities short ter! credit to far!ers$ The sche!e has gained popularity
and its i!ple!entation has been taken up by *. co!!ercial banks5 (3. ##Bs and 002 entral cooperative banks$
4G#I<LT<#4L I;9<#4;C 4s 4gricultural is highly susceptible to risks such as drought5 flood5 pests etc$ It is
necessary to protect the far!ers fro! natural cala!ities and ensure their credit eligibility fro! the ne:t season$
Towards this purpose5 the Govern!ent of India introduced a co!prehensive crop insurance sche!e through the
country in (13- covering !aEor cereal crops5 oilseeds and pulses$ 4!ong co!!ercial crops5 seven crops vi@$5
sugarcane potato5 cotton5 ginger5 onion5 tur!eric and chilies are presently covered$
"or develop!ent of fruit and garden crops5 for leveling and develop!ent of land5 for purchase of ploughs5 ani!als5
etc$ o!!ercial banks also e:tend loans for allied activities vi@$5 for dairying5 poultry5 piggery5 bee keeping5 fisheries
and others$ These loans co!e to (- to (/?$
LAND 54R*6A6+ BAN;
Land Mortgage Banks are the pri!ary source of credits to far!ers who own a parcel of land$ 4gainst this land5 the
LMB can advance loan and in case of a default repossess the land$ o!!ercial banks are not legally allowed to
repossess the land in case of a default against it repay!ent of bank loans$
C455+RCIAL BAN;2 AND RURAL CR+DI* The co!!ercial banks at present provide short ter! crop loans
account for nearly 2- to 2.? of the total loans given and disbursed by the co!!ercial banks$ Ter! loans for varying
periods are given for purchasing pu!p sets5 tractors and other agricultural !achinery5 for construction of wells and
tube well5
DIR+C* FINANCIN6 B< C455+RCIAL BAN;2 o!!ercial banks were e:pected to vigorously support the
far!ers in general and s!all cultivators in particular$ "or obvious reasons the nationali@ed banks concentrated their
attention on cultivators and other special category far!ers such as those engaged in raising high,yielding verities of
food grain$
Ter! loans for varying periods are given for:
1. +urchasing pu!p,sets5 tractors and other agricultural !achinery
2. onstruction of wells and tube wells
3. Develop!ent of fruit and garden crops
. Leveling and develop!ent of land5 for the purchase of ploughs5 ani!als etc$
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Rural Marketing_Financial Services in Rural Area
R+6I4NAL RURAL BAN;2:
#ural banking in India started since the establish!ent of banking sector in India$ #ural Banks in those days !ainly
focused upon the agro sector$ #egional rural banks in India penetrated every corner of the country and e:tended a
helping hand in the growth process of the country
2+R=IC+ AR+A A99R4AC3 :2AA1
+ublic sector banks adopted a new strategy for lending on the basis of a study on the i!pact of bank credit in the
rural sector vi@$5 H9ervice 4rea 4pproach= under which each se!i,urban and rural branch of co!!ercial banks was
assigned a specific area co!prising a cluster of villages within which it would operate5 adopting a planned approach$
It was to avoid duplication of efforts and scattered lending over wider areas$
The i!ple!entation was:
($ Identification of service area5
*$ 9urvey of the service area for assessing the potential for lending5
0$ +reparation of credit plans on annual basis5
2$ oordination on a continuing basis5
-$ 4 continuous syste! of !onitoring the i!ple!entation plans$
9o!e of the advantages clai!ed of 944 are as followsI
($ 4ttention to the develop!ent of the service area for each branch
*$ 4voidance of duplication of efforts
0$ Brgani@ed and planned lending
2$ Casier and effective !onitoring of the end,use of credit
-$ 4ssess!ent of its i!pact on production levels$
The proble!s during i!ple!entation of the 944 were with respect to: 4llocation of villages and Brgani@ational
issues$
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