Sa-Dhan Newsletter Volume 5 Issue 2

Operational Costs of Delivering Microfinance : Banker's Perspectives

crores were outstanding from various State Governments.

been advised to work out a simple action plan. NABARD

Concerned over the significant shortfalls in the disbursal

has advised banks to organise campaigns and banker-

of RIDF funds, the scope of RIDF lending was extended

borrower meets to ensure coverage of all eligible farmers

to cover soil conservation, rural market yards, inland water

by March 31, 2004. In addition, NABARD has taken the

ways, fish jetties, cold storages, godowns and more recently

following initiatives.

rural health centres, primary school buildings, mini hydel

Provision of financial assistance under Cooperative

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plants, citizen information centres under information tech-

Development Fund to cooperative banks for publicity

nology in addition to irrigation projects and rural roads.

campaigns.

Under RIDF IX, Government of India had advised NABARD

Financial support to RRBs under the R&D Fund to

to sanction loans for projects which directly benefit the

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take up publicity campaigns in North-Eastern States.

farmers. Accordingly, 60 per cent of sanctions from the

This scheme has also been extended to other parts

corpus of Rs.5,500 crore provided under RIDF IX was

of the country.

earmarked for flood protection irrigation, agriculture and

allied activities and system improvement and mini hydel

Publicity through postal media. Under this scheme,

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power projects. Interest rate on loans under RIDF had been

printing order for 10 lakh Meghdoot post cards at

reduced from 13.0 per cent in 1995-96 to 11.5 per cent

a cost of Rs.17.1 Iakh has also been placed with the

in 2000-01 and further to 8.5 per cent in 2002-03.

postal authorities.

Considering the declining trend of interest rates, the lending

In order to assess the impact of the scheme, RBI entrusted

rates in respect of un-disbursed amount of RIDF tranches

a survey to National Council of Applied Economic Research

IV to IX was restructured with effect from November 1,2003

(NCAER), New Delhi. The survey conducted by NCAER

with the approval of RBI. Accordingly, State Governments

covered 11 States by selecting 2 representative States from

would be required to pay 7 per cent in respect of

each of the five zones, that is, East, West, Central, North,

undisbursed amount of RIDF IV to VII and Bank Rate plus

South and one State from the North-East. From the 54

0.5 percentage point in respect of RIDF VIII and IX. The

districts chosen for the survey, a total of 433 bank branches

banks would be paid 6 per cent in respect of the un-

were selected and from each selected village a sample size

disbursed amount of RIDF IV to VII uniformly and varying

of both KCC holders and non-KCC holders in the ratio of

rates of interest between the Bank Rate and Bank Rate

10:2 was selected. The draft report of the survey is being

minus 3 percentage points in respect of RIDF VIII to IX.

examined.

The rates of interest on deposits in the case of RIDF VIII

Loans disbursed under KCC are now covered under

and IX will continue to be linked to the shortfall in lending

Rashtriya Krishi Beema Yojana of the General Insurance

to agriculture. Assistance under RIDF has resulted in the

Corporation. KCC holders are being provided personal

addition of 78.8 lakh hectares of irrigation potential and

accident insurance cover of Rs. 50,000 for accidental death

1,46,535 kilometres of roads by the end of November, 2003.

and Rs. 25,000 for permanent disability.

In the Interim Budget for the year 2004-05, an announcement

Micro finance

was made regarding the setting up of Lok Nayak Jai Prakash

Narayan Fund (LNJP.NF), also called Agricultural

Sustained access of the poor to micro-finance services is

Infrastructure and Credit Fund, with NABARD with a corpus

a key element in addressing the problem of poverty. Despite

of Rs. 50,000 crore spread over three years (April 2004

the availability of nearly 1.5 lakh retail credit outlets of the

to March 2007). The objective of the Fund is to create

formal banking system, including co operatives in the rural

mechanism for efficiently aggregating resources from vanous

areas, nearly 36 percent of rural households depended on

providers of long term financing, facilitating resource flow

informal sources of finance, according to the All-India Debt

from the market and channelising for agriculture/rural

and Investment Survey of 1991. To strengthen credit

infrastructure creation. The Fund will thus be utilized for

delivery in the rural areas, the programme of linking self

enhancing the efficiency, productivity and profitability of

help groups (SHGs) of the rural poor with the banking

Indian agriculture so as to augment the income of rural

system was launched in 1992 as a pilot project. Over the

households by strengthening infrastructure necessary for

last decade, this flagship savings-led micro finance inno-

agriculture, agri-exports, diversification and value addition.

vation has come to symbolise an enduring relationship

Consequent to the operationalisation of the LNJPNF, the

between the financially deprived and the formal banking

RIDE mechanism has been discontinued.

system.

Kisan Credit Cards

The focus under the SHG bank linkage programme is largely

on the rural poor comprising small and marginal farmers,

Kisan credit cards (KCC) scheme was introduced in 1998-

agricultural and non-agricultural labourers, artisans and

99 to improve credit delivery to farmers. The scheme is

craftsmen. The uniqueness of the programme is the

being operated by cooperative banks, regional rural banks

zero subsidy. There are three models of credit linkage of

(RRBs) and SCBs. The KCC scheme has been progressing

SHGs with banks, viz., SHGs formed and financed by banks,

well; and the number of cards increased from 6.1 lakh at

SHGs formed by formal agencies other than banks but

the end of March 1999 to 413.8 lakh at the end of March

financed by banks, and SHGs financed by banks using

2004. Cooperative banks accounted for the bulk of the cards

NGOs and other agencies as financial intermediaries. SHGs

issued (58.6 per cent) followed by PSBs (32.0 per cent)

formed by formal agencies account for a predominant share

and RRBs (9.4 per cent). The Government of India has set

of SHG-bank linkage (72 per cent). SHGs formed by banks

a time frame of March, 2004 for covering all eligible farmers

and SHGs financed through NGOs account for 20 per cent

under the scheme. For meeting this time frame, banks have

and 8 per cent of the total, respectively.

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