Role of Financial Institutions in Rural Entrepreneurship

- coolkarni

• Rural India – Agriculture

• Low productivity → Low income → Low investment

• The provision for entrepreneurship development has increased the production and productivity to great extent

• Private money lenders, and traders and commission agents dominated the rural areas

• Now nearly 50-60 % of investment requirements are provided by organized agencies

• Gorewala committee report- recommended the need of Govt support

• But the credit from organized sector was not sufficient to cover the requirements

• As a result commercial banks were brought in to picture

1950-51 1980-81

Government 3.3 4.0

Cooperatives 3.1 30.0

Commercial banks

0.9 20.0

Money lenders and comission agents

75.2 35.0

Friends and relatives

14.2 10.0

Others 3.3 1

• In 1968 the social control was improved giving opportunity to transact business in rural areas- result was not encouraging

• July 1969- prime minister nationalized 19 commercial banks – lead to expansion of branch network in rural areas

• Today there are 28 nationalised banks 50% of branches are operating in rural areas

Type of credit for investment:

Short term loan:

-for 18 months

- working capital loan given to industrial establishments

- usually without any collateral security

Medium- term loans:

- for machinery etc

- investments involves lower amount of capital

- can repay in 5-8 years

Long term loans:

- For high investment purpose

- Collateral security is needed

- Can repay in 20 years

Rural credit institutions:

• National bank for agriculture and rural development

• Commercial banks

• State cooperative banks

• State cooperative agriculture and rural development banks

NABARD

• Providing finance facility to all other institutional agencies

• The rural credit department & agricultural refinance and development corporation were merged to form NABARD in 1982 July 12

NABARD’S MAIN FUNCTIONS :

• Refinance to cooperatives and RRB

• To provide financial support in times of natural calamities

• Contribution to share capital of cooperatives engaged in rural area

• Loans to state govt for contribution to share capital of cooperative organizations

• To coordinate the activities of rural credit institutions o facilitate training. Research for rural development

• During 2002-03 total assets of nabard were 50,885 crores

• There was 13% growth and PBT was Rs.1524

Credit operations in 2002-03:

• Short term credit limit sanctioned

Rs. 7,927 for seasonal agricultural operations

• Rs. 153 crore for other than seasonal operations

• Rs. 551 crore for cooperative society

• Rs. 493 crore to RRB’s

• Rural infrastructure development fund

Rs. 17,145 crores by 2003

• Support for micro financing and financial development programmes.

Commercial banks:

• There are about 100 commercial banks

• 51,595 branches of which 40 % were rural branches, semi urban 25 % and urban 19%, and metropolitan branches 16%.

• 40 % of the total advances must come from rural areas

State cooperative banks:

• Offer only short term loan

• Operate at state level with branches in rural areas

• The share holders and members are from district central cooperative banks

• It operates in district level and village level

• Financed by NABARD

State cooperative agricultural and rural development banks:

• Offer medium term and long term loans

• There 19 banks and 1219 branches

• Operating in village and district level

• There is no banking operations

Regional rural banks:

• There are 196 RRB’s mainly to support agriculture

• Also called as grameen banks

• There are 6 metropolitan, 348 urban, 1875 semi urban

• Offer all the tree types of loan

Thank you……