Special Correspondent

$600 million to help meet farmers’ needs

Rural masses at the mercy of moneylenders

Better access to finance critical to higher growth

NEW DELHI: In one of the largest support packages, the World Bank on Wednesday approved a $600-million loan and credit to India aimed at transforming farmers’ access to financial services.

The project is in support of the Government’s programme to reform and revitalise rural credit cooperative banks (RCCBs). There are 31 State cooperative banks, 367 district central cooperative banks and more than one lakh primary agricultural credit societies.

According to a World Bank statement, the goal is to transform these credit cooperatives into “efficient and commercially viable institutions responsive to the financial service needs of India’s poorer farmers, including small and marginal farmers.”

Rural credit

Explaining the genesis of the rural credit problem, the Bank said: “Since the early 1990s India has introduced impressive financial sector reforms that have resulted in increased competition, diversification, openness and depth. Yet, India’s rural population still has limited access to finance from formal sources, relying instead on extortionate moneylenders. The problem is particularly severe for small and marginal farmers, who are among the poorest of India’s rural dwellers farming, respectively, less than one acre and between one and four acres of land.”

As per estimates, about 87 per cent of the marginal farmers and 70 per cent of small farmers have no access to credit from a formal financial institution.

“Better access to finance for India’s rural poor is absolutely critical to higher rural growth,alleviating poverty,” the statement quoted the World Bank Country Director for India Isabel Guerrero as saying.

Loan project

The loan project would provide small farmers improved services such as credit, savings, remittances and insurance.

Participating in the rural credit reform programme are 12 States — Andhra Pradesh, Arunachal Pradesh, Bihar, Gujarat, Haryana, Madhya Pradesh, Maharashtra, Orissa, Rajasthan, Uttar Pradesh, Uttarakhand and West Bengal.

They have signed the memoranda of understanding with the Indian Government and the National Bank for Agriculture and Rural Development.

Far-reaching reforms

The potentially viable RCCBs in these States would adhere to a set of far-reaching legal, regulatory, governance and institutional reforms to pave the way for financial and operational restructuring. In the process, the RCCBs would be recapitalised with grants to wipe out accumulated losses.

Alongside, the value of the members’ capital would stand restored, and a minimum capital to risk weighted assets ratio (CRAR) of seven per cent would be achieved.

The project would also extend technical assistance to strengthen RCCB governance, managerial and operational performance, and support computerisation for enhanced efficiency and transparency.

RCCBs to be transformed

According to the Bank’s lead economist and project team leader Priya Basu, the project would transform the RCCBs into efficient and commercially viable institutions, capable of providing financial services to the poorest farmers at affordable terms.

Out of the $600-million package, the loan component from the International Bank for Reconstruction and Development has a maturity span of 20 years, including a five-year grace period.

The credit portion — with a maturity period of 35 years and a 10-year grace period — is provided by the International Development Association, the Bank’s concessionary lending arm.

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