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    Rural Banking & Microfinance

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    Ashish Aggarwal
    Regional Rural Banks (RRBs) were created to combine the local feel of cooperatives with the business organization of commercial banks, to better provide agricultural and rural credit in India. NABARD was established as the apex development bank to facilitate credit flow for rural development. The microfinance sector in India utilizes self-help groups (SHGs) which are small groups of rural poor who save and borrow together. SHGs are linked to banks, with some models using NGOs as intermediaries. Microfinance has expanded significantly in India, with billions disbursed in microcredit reaching over 170 million people.

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    Rural Banking & Microfinance

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    Ashish Aggarwal
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    Regional Rural Banks (RRBs) were created to combine the local feel of cooperatives with the business organization of commercial banks, to better provide agricultural and rural credit in India. NABARD was established as the apex development bank to facilitate credit flow for rural development. The microfinance sector in India utilizes self-help groups (SHGs) which are small groups of rural poor who save and borrow together. SHGs are linked to banks, with some models using NGOs as intermediaries. Microfinance has expanded significantly in India, with billions disbursed in microcredit reaching over 170 million people.

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    Regional Rural Banks (RRBs) were created to combine the local feel of cooperatives with the business organization of commercial banks, to better provide agricultural and rural credit in India. NABARD was established as the apex development bank to facilitate credit flow for rural development. The microfinance sector in India utilizes self-help groups (SHGs) which are small groups of rural poor who save and borrow together. SHGs are linked to banks, with some models using NGOs as intermediaries. Microfinance has expanded significantly in India, with billions disbursed in microcredit reaching over 170 million people.

    Copyright:

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    Download as pptx, pdf, or txt
    148 views31 pages

    Rural Banking & Microfinance

    Uploaded by

    Ashish Aggarwal
    Regional Rural Banks (RRBs) were created to combine the local feel of cooperatives with the business organization of commercial banks, to better provide agricultural and rural credit in India. NABARD was established as the apex development bank to facilitate credit flow for rural development. The microfinance sector in India utilizes self-help groups (SHGs) which are small groups of rural poor who save and borrow together. SHGs are linked to banks, with some models using NGOs as intermediaries. Microfinance has expanded significantly in India, with billions disbursed in microcredit reaching over 170 million people.

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    of 31

    RURAL BAKING AND MICROFINANCE

    Presenter:

    Prof. Vighneswar

    Our Discussion is on:

    Sources of Rural Finance


    Credit Delivery Mechanism Regional Rural Banks

    Cooperative Banking Institutions


    NABARD

    MICROFINANCE

    Rural Finance Sector: Special Features


    Low density of population Small Size of Average Loans High Transaction Costs

    Absence of traditional forms of collateral Seasonality of rural Agricultural business cycle


    Inadequate Communication Lack of integration with other markets

    Limited scope for risk diversification.

    Institutionalization of the System in India


    Disbursement of taccavi loans by the Government at times of natural calamities (under Taccavi Loan Acts, 1871-79) Land Improvement Loans Act in 1871 and the revised version of the same Act in 1893 The Agriculturist Loans Act, 1884 enabling the government to sanction short-period loans for purchase of seeds, cattle and other The Deccan Agricultural Relief Act, 1879 enacted with a view to regulating the business of moneylenders Co-operative Societies Act was introduced in 1904

    Sources of Rural Finance

    Regional Rural
    Banks

    Commercial

    Banks

    Cooperative Banks

    Structure of Rural Banking

    Please Note: No. of banks and branches have undergone changes But the structure remains the same

    Regional Rural Banks

    Scheduled Banks

    Commercial Banks

    Owned by Government (Public Sector)

    Regional Rural Banks

    Regional Rural Banks


    Regional rural banks (RRBs) were conceived as institutions that combine the local feel and familiarity of co-operatives and the business organisation ability of the commercial banks. In a multi-agency approach for agricultural and rural credit in India, RRBs have a special place. Amalgamation of RRBs 3.129 The Advisory Committee on Flow of Credit to Agriculture and Related Activities (Chairman: Prof. V.S. Vyas) in June 2004 recommended restructuring of RRBs in order to improve the operational viability of RRBs and take advantage of the economies of scale. Consequent upon the amalgamation of 147 RRBs into 46 new RRBs, sponsored by 19 banks in 17 States, effected by the Government of India since September 12, 2005, the total number of RRBs declined from 196 to 95 as on August 31, 2007.

    The Government of India issued a notification on May 17, 2007 specifying regional rural bank as bank for the purpose of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.

    Measures to Improve Operational Efficiency


    With a view to improving the performance of RRBs and giving more powers and flexibility to their boards in decision making, the Reserve Bank had constituted the Task Force on Empowering the RRB Boards for Operational Efficiency (Chairman: Dr. K.G. Karmakar) in September 2006.

    The Task Force on Empowering the RRB Boards for Operational Efficiency
    The Task Force on Empowering the RRB Boards for Operational Efficiency (Chairman: Dr. K.G. Karmakar) in its report of January 2007 made several recommendations. Some of the key recommendations are as follows:
    The Task Force on Empowering the RRB Boards for Operational Efficiency (Chairman: Dr. K.G. Karmakar) in its report of January 2007 made several recommendations. Selection of chairman of RRBs be made on merit from amongst a panel of qualifying officers. Minimum tenure of board members be stipulated as 2 years, subject to a maximum of 5 years for the chairman. The term of nominee directors should not exceed two terms of two years each.

    FINANCIAL PERFORMANCE OF RRBs

    FINANCIAL PERFORMANCE OF RRBs ..

    Business and Financial Indicators of RRBs

    Purpose-wise Outstanding Advances by RRBs (As at end-March)

    Cooperative Banking Institutions


    At State Level

    SCBs (31)
    DCCBs (366)

    At District Level

    At Village level

    PACS (105735)

    Cooperative Banking Institutions ..


    At State Level

    SCARDBs(19)
    PCARDBs(366)

    At Village level

    NABARD

    NABARD is set up as an apex Development Bank with a mandate for facilitating credit flow for promotion and development of agriculture, small-scale industries, cottage and village industries, handicrafts and other rural crafts. It also has the mandate to support all other allied economic activities in rural areas, promote integrated and sustainable rural development and secure prosperity of rural areas. In discharging its role as a facilitator for rural prosperity NABARD is entrusted with Providing refinance to lending institutions in rural areas Bringing about or promoting institutional development and Evaluating, monitoring and inspecting the client banks

    Mission
    Promoting sustainable and equitable agriculture and rural development through effective credit support, related services, institution building and other innovative initiatives.

    NABARD focuses its activities on:


    CREDIT FUNCTIONS
    involving preparation of potential-linked credit plans annually for all districts of the country for identification of credit potential, monitoring the flow of ground level rural credit, issuing policy and operational guidelines to rural financing institutions and providing credit facilities to eligible institutions under various programmes

    DEVELOPMENT FUNCTIONS

    concerning reinforcement of the credit functions and making credit more productive

    SUPERVISORY FUNCTIONS ensuring the proper functioning of


    cooperative banks and regional rural banks

    Organization Structure of NABARD

    Objectives of NABARD
    1. The National Bank will be an apex organisation in respect of all matters relating to policy, planning operational aspects in the field of credit for promotion of Agriculture, Small Scale Industries, Cottage and Village Industries, Handicrafts and other rural crafts and other allied economic activities in rural areas. 2. The Bank will serve as a refinancing institution for institutional credit such as long-term, short-term for the promotion of activities in the rural areas. 3. The Bank will also provide direct lending to any institution as may approved by the Central Government. 4. The Bank will have organic links with the Reserve Bank and maintain a close link with in.

    MICROFINANCE
    .
    .

    A SHG is a small homogeneous group of rural poor coming together to save small amounts regularly and mutually contribute to a common fund to be lent to individual members per group decisions.
    .

    SHG
    . . . .

    Often one or the other organization, usually an NGO, forms the group and links it with a bank as part of a broader package of activities implemented by the NGO in the village.

    Self Help Groups in India - Images

    MICROFINANCE
    Micro-savings deposit facilities
    for:
    the safekeeping of savings consumption-smoothing emergencies accumulation of resources self-financing of investments

    Micro-credit, with access to loans of


    various sizes and maturities for: external financing of investments consumption-smoothing emergencies

    Plus, other financial services, for example Micro-insurance, including microleasing, supplemented by nonspecialized insurance services (life, financial services. health, accident or cattle insurance) and non-specialized services (providing social protection through access to ones savings or to credit in cases of emergency) for: risk management, social security, loan protection

    Diagrammatic presentation of microfinance structure through Self Help Groups in India

    NABARD

    NGOs

    SHGs

    MODEL 1:

    NGOs as SHPIs:

    PROMOTION, TRAINING & HELPING IN LINKAGE WITH BANKS

    BANKS

    SHGs

    In India: About 75% of the linkage is through

    model 1

    MODEL 2:

    NGOs as Financial Intermediaries:

    NGOs

    BANKS

    Provide all supports to SHGs including credit

    SHGs

    In India: About 10% of the linkage is through

    model 2

    MODEL 3:

    Banks as SHPIs:

    Promotion, Training & Providing Credit Support to SHGs

    BANKS

    SHGs

    In India: About 15% of the linkage is through

    model 3

    MICROFINANCE

    PROGRESS UNDER MICROFINANCE IN INDIA


    Upto 31st March 2006 - in Million US dollars

    Agency / Program NABARD SHG Bank linkage SIDBI-MFI SGSY

    Cumulative micro credit disbursed Amount 2590.45 173.14 893.81 % share to total 69.2 4.6 23.9

    No.of persons reached (in Millions) 164.9 2.6 3.2

    Others(RMK &FWWB)
    Total

    88.10
    3745.50

    2.3
    100

    1.1
    171.8

    Highlights of SHG- bank linkage programme as on 31 March 2007:

    Particulars
    Savings Accounts of SHGs with Banks as on 31 March 2007No Bank Loans disbursed to SHGs during the year Bank Loans outstanding with SHGs as on 31 March Bank Loans disbursed to MFIs during the year Bank Loans outstanding with MFIs as on 31 March

    Units
    No.
    Amount

    2006-07
    4,160,584 (9,56,317) 3512.71 (757.50) 11,05,749 (1,88,962) 6570.39 (1,411.02) 28,94,505 (6,87,212) 12,366.49 (3,273.03) 334

    No.
    Amount

    No.
    Amount

    No.
    Amount

    1151.56
    550 1,584.48

    No.
    Amount

    Note : (i) Figures in brackets indicate the share of SHGs covered under Swarnjayanti Gram Swarozgar Yojna (SGSY) (ii) Actual number of MFIs provided with bank loans would be lower as several MFIs have availed loans from more than one bank.

    SAVE ENVIRONMENT

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