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tate
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ndia
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ivelihoods
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2015
should also enjoy the low interest rates
available under direct bank loans so that
farmer willingness to avail the loan from
PCs is not diminished.
•
Set up a marketing loan facility under
which PCs can directly borrow from
banks or NABARD up to a specified
threshold against hypothecation of
inputs, crops and commodities in trade.
To increase bankers’ comfort the guar-
antee scheme operated by SFAC can be
extended to these loans.
•
NABARD should also operate a refinance
line for intermediary institutions, such
as FWWB, Ananya, Manaveeya and
any other willing NBFC for onlending
to smaller PCs. This will ensure that
NABARDsupports the PCs either directly
or indirectly, consistent with its capacity
to take-in small loans in its books.
•
The PCs should also design equity contri-
butions frommembers fromout of incre-
mental benefits produced. Particularly
when patronage bonuses are declared,
the members can be persuaded to invest
a portion of the payments into equity.
While the easier option is to transfer a
part of the profits into reserves and shore
up net worth, it would be a tax inefficient
way of building capital funds. By mak-
ing due payments to members, the PC
can collect the tax part of the payments,
which would otherwise have been lost to
both the members and the company.
Challenges in sustainability
of PCs
The challenges identified by POPIs and
boards of PCs are indicated in Table 5.1.
Legal form:
Stakeholders question the ben-
efit of mobilising small producers under a
company form. A company form has lot of
regulations to comply with, and compliance
has a cost. PCs despite being farmer organ-
isations do not get preferential treatment in
taxation. These companies face additional
issues in attracting and retaining profes-
sional staff, governance capacity and ability
to raise capital. Tax issues are severe—32.05
per cent of tax has to be paid on income,
which cooperatives do not have to pay.
Company form has not attracted adequate
bank financing so far.
Businessmix:
POPIs and PCs mention that
PCs cannot be sustainable on inputs supply
alone since the margins are low. Output
marketing has to be the backbone of PCs.
Trust between the PC and the producers has
to be built for sustaining output marketing.
Unless production advice and input services
are provided to the satisfaction of the pro-
ducers, they will find it difficult to break the
members’ traditional links. The key driver
in sustaining member links is availability of
funds for production operations of mem-
bers in the form of banks loans.
Appropriate funding
As discussed earlier, lack of funds is affect-
ing the implementation of business plans,
outreach, visibility, ability to attract and
retain professional staff and ultimately
financial viability of PCs. Banks need to
step in early in the evolution cycle of PCs.
Other instruments to suit the needs of
start-ups should also need to be devised.
Mulkanoor women’s dairy a success story
had patient capital finance for seven years,
which enabled it to stabilise its operations.
Some of the donors and governments can
establish patient capital mechanism with
institutions like FWWB and Manaveeya
who have a proven track record of financ-
ing start-ups. With a significant number of
PCs having been formed already, it makes
little sense to form even more without first
facilitating financial and business linkages.
If banks and financial institutions continue
Table 5.1:
Key issues and needs identified
POPIs/Apex of PCs
Boards of PCs
Finance for PCs’ operations
Member ownership
Member ownership
Lack of qualified staff
Lack of qualified staff
Finance
Funds to POPIs to accompany PCs for a longer
term
Training for board on legal issues, business
planning, marketing
Source:
Discussions with POPIs and Boards of PCs.
