Producer Companies
107
carried out. Exposure visit to other PCs with
good loan repayment performance will have
to be arranged. The boards of PCs have to be
involved in business planning so that the con-
fidence toborrow fromthe bank is developed.
When farmers borrow individually from
a bank they get concessional credit but at the
same time their collectives get loans at com-
mercial rates. If the PCs act as pass through
intermediaries for production loans, the
farmers will not be able to benefit from the
subsidies available under direct bank loans.
Since support to farmers is the objective,
a policy reset is warranted to remove the
distinction in interest rates between direct
loans and indirect loans, especially when the
intermediary is a farmers’ collective.
The business plans facilitated by POPIs
are robust and range from
`
10 million
to
`
50 million of turnover. However, the
attained turnover is hardly 30 per cent to
50 per cent in many of the PCs for which
lack of funds is cited as the most important
cause. As Vijayalakshmi Das, MD, Ananya
Finance points out that unless finance flows,
businesses and member patronage will
be low, and if producers are not availing
services from their organisation, the whole
investment made in creating a producer
organisation will fail to fructify.
Access to finance for PCs should be
improved vastly, looking at their potential
to impact value addition and income at
the farm level. The current scenario points
to inadequate equity, scarcity of funds
for long-term development, very limited
working capital for business operations in
input and output marketing and no arrange-
ments to mitigate liquidity risks (Box 5.3).
While attempts at providing small equity
contributions to a limited number of PCs
are ongoing, the schemes are not designed
to help PCs realise their potential and take
up strategic long-term investments. No
facile market options exist for contributing
to equity of PCs on account of restrictions
on shareholding. Some feasible options are:
•
A subordinated debt capital fund should
be set up which can offer long-term
loans that charge higher interest rates at
the later end of maturities. The size of
debt can be determined as multiples of
member contributed equity so that PCs
continue to mobilise additional equity.
The debt fund should be tradable as
units in the stock exchange.
•
Recognise loans given to PCs for onlend-
ing to farmers for production purposes
as direct agricultural loans. Such loans
A federation of SHGs in the hills of Uttarakhand
was awarded a contract by the Integrated Child
Development Scheme to provide nutritious
home rations for rural households in one block.
The federation had to buy local millets and
pulses from members and some other goods,
such as jaggery and dates from the market. The
federation was in a position to do a business of
about
`
50 lakhs per annum, providing employ-
ment for 20 to 40 women in sorting, packing
and delivery of the rations throughout the year.
But the federation required working capital of
about
`
25 lakhs as payment from ICDS was
not expected to be regular, but lumpy. The
federations found it difficult to borrow from
banks, which required collateral. The federation
then requested the constituent SHGs to bor-
row from banks and relend to the federation.
The federation was prepared to pay 1 per cent
more to SHGs than the rate of interest at which
SHGs borrowed from the bank. The federation
was able to access more than
`
20 lakhs by way
of working capital through this mechanism.
The business fetched a handsome profit to the
federation after paying interest on the loan.
More importantly the price of Madua, a local
millet and Kali Bhat, black soya, increased in
the market benefiting small farmers.
Source:
Based on discussions with officials
of Integrated Livelihood Support Project,
Uttarakhand, implemented by the Government
of Uttarakhand with a loan from International
Fund for Agricultural Development.
Box 5.3:
Old problem and a new solution
