Innovations in Rural and Agricultural Finance - page 6

distributing the energy & efforts on every sector/sub-sector under priority sectors, recently a new
innovation in the form of Priority Sector Lending Certicate has been introduced in India. Rural
banks having exceeded the targeted amount of agricultural and other priority sector loans in their
books can issue such certicates at a price to banks which fall short of their agriculture credit
targets. These certicates are tradable among banks over an electronic platform. It helps rural
banks earn an extra income for their sustainability.
iii. Implementation
a. Subsidy-linked credit schemes
To diversify agriculture and ensure income security to small farmers, Government of India and
the Provincial Governments promote subsidy linked credit programmes (dairy, poultry etc.).
Subsidised credit linked programmes are also introduced for cold storages, rural godowns,
market yards etc. The subsidy under these programmes works as an incentive for farmers to take
up these activities and enhances their capacity to borrow fromformal banking channels.
b. Area development schemes/plans
To take advantage of specic potential of local natural resources and local human skills, area based
banking plans have been prepared for purveying credit to activities allied to agriculture and in off-
farm sector. Concessional renance products have also been created for weak banks
predominantly operating in rural areas.
c. Rural InfrastructureDevelopment Fund
Rural infrastructure is an important factor in determining rural credit absorption capacity. The
banks in India (with Government as majority shareholder) had been constrained in purveying
rural credit due to lack of supporting rural infrastructure and were failing to achieve annual rural
credit targets. To address this issue, a major innovation, through creation of a dedicated
infrastructure fund namely Rural Infrastructure Development Fund (RIDF), has been brought in
since 1995. The amount representing shortfall in achievement of priority sector lending targets is
pooled annually from different banks. Provincial governments could borrow from this
Infrastructure Development Fund for fast-forwarding rural infrastructure projects. The
innovation has been fairly successful in complimenting resources of the provincial governments
and completing rural infrastructure projects in time. It has enhanced capacity of the rural poor to
borrow and leveraged/allowed the national government in recent years to x higher rural and
agriculture credit targets for banks. India can now boast of having successfully implemented one
of themost robust credit supported rural infrastructure programme.
iv. Monitoring
a. Target approach
Being a densely populated area, agriculture is predominantly small holding. Credit to farmers in
India is directed by the government. The government sets, in the beginning of the year, the amount
of formal sector credit for farming activities and has put in place robust monitoring mechanism.
For the current nancial year 2016-17, the agricultural credit target is set at Rs. 9 trillion (USD 140
bn).
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