Page 329 - DMGT509_RURAL MARKETING

Rural Marketing

Notes bonds and debentures contributed nearly 15%. Around 12% came from the National Rural
Credit Fund, which is augmented by the RBI and its internal accruals, and around 10% from
Nabard's capital reserves and surplus.
The banks put their money in the RIDF at a 6% interest rate, but Nabard lends this money out at
6.5% to states for infrastructure projects. Nabard's dependence on RIDF money renders it
vulnerable, and this seems to have triggered the repositioning that will involve moving to a
direct financing model. Banks rushing to meet their priority sector lending targets may stanch
the flow of unutilized money into this fund in future, which could starve Nabard of its major
source of capital.

Microfinance has been attractive to the lending agencies because of demonstrated sustainability
and of low costs of operation. Institutions like SIDBI and NABARD are hard nosed bankers and
would not work with the idea if they did not see a long term engagement – which only comes
out of sustainability (that is economic attractiveness). On the supply side, it is also true that it has
all the trappings of a business enterprise, its output is tangible and it is easily understood by the
mainstream. This also seems to sound nice to the government, which in the post liberalisation
era is trying to explain the logic of every rupee spent. That is the reason why microfinance has
attracted mainstream institutions like no other developmental project. Perhaps the most
important factor that got banks involved is what one might call the policy push. Given that most
of our banks are in the public sector, public policy does have some influence on what they will
or will not do. In this case, policy was followed by diligent, if meandering, promotional work
by NABARD. The policy change about a decade ago by RBI to allow banks to lend to SHGs was
initially followed by a seven-page memo by NABARD to all bank chairmen, and later by
sensitisation and training programmes for bank staff across the country. Several hundred such
programmes were conducted by NGOs alone, each involving 15 to 20 bank staff, all paid for by
NABARD. The policy push was sweetened by the NABARD refinance scheme that offers much
more favourable terms (100% refinance, wider spread) than for other rural lending by banks.
NABARD also did some system setting work and banks lately have been given targets. The
canvassing, training, refinance and close follow up by NABARD has resulted in widespread
bank involvement.

Did u know? Another innovation is that of The Punjab Mandi Board, which has experimented
with a ‘farmers’ market’ to provide small farmers located in proximity to urban areas, direct
access to consumers by elimination of middlemen. This experiment known as “Apni Mandi”
belongs to both farmers and consumers, who mutually help each other.

17.5 Marketing of Microfinance Products

Contract Farming and Credit Bundling

Banks and financial institutions have been partners in contract farming schemes, set up to
enhance credit. Basically, this is a doable model. Under such an arrangement, crop loans can be
extended under tie-up arrangements with corporate for production of high quality produce
with stable marketing arrangements provided – and only, provided – the price setting mechanism
for the farmer is appropriate and fair.

Agri Service Centre – Rabo India

Rabo India Finance Pvt Ltd. has established agri-service centres in rural areas in cooperation
with a number of agri-input and farm services companies. The services provided are similar to

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