Transcript Agenda - Rural Finance

Financing Agri Value Chain
Indian Experience
March 16th 2007
‘Prajápatye Kasyapáya déváya namah.
Sadá Sítá medhyatám déví bíjéshu cha
dhanéshu cha. Chandaváta hé."
Translation:
Salutation to God Prajápati Kasyapa. Agriculture may always
flourish and the Goddess (may reside) in seeds and wealth.
Channdavata he."
Theme
Post Independence Government extended the World War II Grow More Food
Campaign
Credit Reach remains a Huge Challenge, across the value chain
Social Responsibility to Business Opportunity :Changing Perception of Banks
Corporates Taking a huge plunge in offering value adds to the Value chain.
Evolution of Structured Credit
Land Improvement
Loans Actconsolidated Law
intended to
provide
advancement of
Agriculture
Enactment of Cooperative Credit
Societies Act- to
meet short term
credit
1860
1833
Tacavai’ loans
from the land
revenue collected
(British Govt)
14 Major
Commercial Banks
,Nationalised
1975
1950
1904
Primary
Agriculture Cooperatives
Societies formed
CRAFICARD
recommends
formations of a
separate Apex
bank for agri
credit:
NABARD
1969
Nov 1979
Regional Rural
Banks (RRB)
formed
Innovative
Financial Models
targeting
Farmers
1990-2007
Current Status
Micro Finance/
Financial
Inslusion
Institutional Structure- Agriculture &
Rural Credit in India
NABARD
Co-operative Banks
SCHD Comm. Banks
( 88)
Regional Rural Banks
(133)
Short Term Structure
Long Term Structure
Metropolitan Branches
(8507)
Metropolitan Branches
(6)
SCBs
( 29)
SCARDBs
(19)
Urban Branches
(10006)
Urban Branches
(348)
Semi-Urban Branches
(12633)
Semi-Urban Branches
(1875)
Rural Branches
(20449)
Rural Branches
(12084)
Branches
(823)
DCCBs
(367)
Branches
(12407)
PACS
( 92000 Approx)
Branches
(1219)
PCARDBs
(755)
Branches
(689)
Extension services
Providing value adds
Aggregation of
Farmers exposure
Hedging
Integrated
Services
Structured
Finance
Bundling , it along
with lending
Insurance
Farmer
Increasing
exposure
Securitisation,
Portfolio buyouts
Credit Delivery
Channels
Focus on
Cash Flows
Technology
New
delivery
channel
Agency
Tie ups
MFI/SGH/Cooperatives
Commodity Boards
as conduits
Over the years financial institutions are exploring innovative ways to reach the
entire value chain
Customized Products to stakeholders across the
value chain
SEEDS
Lending against
offtake contract
Contract Seed Growers
Term lending/ WC
Seed Company
Contractual
agreement
Lending against stop
sales agreement
Distributor
Preferred
distributors
Short term lending
against liquid collateral
Credit sales
Dealer
Crop loans
EDIBLE OIL
Credit/
forward
contract
Crop loan
Farmer
Farmer
Spot market
price
Village level CA
WR finance
Warehouse
Receipt
Mandi/ Warehouse
Warehouse
Receipt
Wholesaler
Credit
Vendor bill
discounting
Miller
Credit Flow to Agri & allied Activities
Crs
($ Bln)
Agency
Cooperative
Banks
1998-99
1999-2000
2000-2001
2001-02
2002-03
15,957.00
(3.59)
18,260.00
(4.10)
20,718.00
(4.66)
23,524.00
(5.29)
RRBs
2,,460.00
(0.55)
3,172.00
(0.71)
4,220.00
(0.95)
4,854.00
(1.09)
6,070.00
(1.36)
7,581.00
(1.70)
Commercial
Banks
18,443.00
(4.14)
24,733.00
(5.56)
27,807.00
(6.25)
33,587.00
(7.55)
39,774.00
(8.94)
52,441.00
(11.78)
1,030.00
(0.23)
82.00
(0.02)
80.00
(0.02)
80.00
(0.02)
47,195.00
(10.61)
52,827.00
(11.87)
62,045.00
(13.94)
69,560.00
(15.63)
Other Agencies
Total
36,860.00
(8.28)
As of Jan 2007
Rs.Crs
USD/ bln
Total O/s Bank
Credit
1,757,497.00
% of
Credit
394.94
Non-food
1,714,396.00
98%
385.26
Food
43,083.00
2%
9.68
Agri & Allied
1,86,533.00
11%
41.92
23,636.00
(5.31)
2003-04
26,959.00
(6.06)
86,981.00
(19.55)
Expensive Credit
Transaction Cost


Distribution network
Paper work
High Risk Charge

Low technology penetration
To cover the credit risk,
premiums are charged.

Prohibitive
costs
Low Profitability

Despite the spreads, lending
often remains unviable
Credit delivery platforms
need to be developed to
reach the masses
Legal Issues

In case of default no legal
recourse
Need for viable Credit Delivery Model
… with varied risks
Price Risk
Yield Risk
Risk
Elements
Liquidity
Constraints
No Sale Trans.
by Farmer
Diversion of
Funds
Non Delivery
of Crop
Need for a Holistic Development Approach –
along the Agri Value Chain
Processing
Wholesaler
Consumer
Orientation
Market Linkage
Commodity Trading
Agri Infrastructure
& Logistics
Streamlined
supply
chain
Financial
Services
Retailer
Market
Developmen
t
Production
Price competitiveness
Handling
& Mrktg.
Research &
Extension
Farmer
linkages
Action steps
The hand that feeds is shrinking, and if it is not
supported any further, it will soon become
extinct