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Rural Finance - Institutions

Rural Finance - Institutions. Institutions Organizational structure Policies Outcome Innovations. Rural Finance - Institutions. Private moneylenders/traders/landlords - Promptness of services - supply loan and receive payments in variety of forms and size

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Rural Finance - Institutions

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  1. Rural Finance - Institutions • Institutions • Organizational structure • Policies • Outcome • Innovations

  2. Rural Finance - Institutions • Private moneylenders/traders/landlords - Promptness of services - supply loan and receive payments in variety of forms and size - No or hardly any marketable collateral - Interlinking of credit transaction - Successful use of borrowers’ credit records - Proper monitoring of loans - vary high interest rate - perpetual indebt ness of borrowers - still occupy a dominant role in rural financial market

  3. Rural Finance - Institutions • Cooperative credit institutions - Separate institutions for short term and long term credit - Three tier structure for short term credit - State cooperative banks - District central cooperative banks - Primary agriculture credit societies

  4. Rural Finance - Institutions • Registered under cooperative society act 1904 • Financial partnership by state in 1954 • Large membership but heterogeneous • Peoples’ own organization • Based on members’ contribution of funds • PACS, FSS and LAMPS

  5. Categories of PACS

  6. Rural Finance - Institutions • The share of cooperatives in agriculture credit has declined from 77 percent in 1970-71 to about 30 per cent • The borrowing members are only 24 percent • The average deposit per society is as low as Rs. 650 in Bihar to Rs. 7000 in West Bengal and Maharashtra • Loan business: most of the cases Rs. 2,00,000 against the viability norm of Rs. 10,00,000 • High dependence on govt. for share capital except in case of Gujarat and Maharashtra

  7. Rural Finance - Institutions • Two-tier system for Cooperative Long-term credit • State land development banks • Primary land development banks • Finance land based activities like minor irrigation, farm mechanization and land improvement

  8. Rural Finance - Institutions • Commercial Banks - Nationalized in 1969 - branch expansion in rural areas - credit quota - 40 percent of credit to priority sector - 40 percent of priority sector credit to agriculture sector - concessional interest rate on lending

  9. Rural Finance - Institutions • Regional Rural banks - established in 1975 - cheaper rural wing of commercial banks - local feel and familiarity along with degree of business organization - each RRB was sponsored by a commercial banks - source of fund: sponsored bank – 35%; central govt. – 50 %; state govt. 15 % - lending to only priority sector and mostly ST loans - out of 196 RRBs, 152 are in loss

  10. Rural Finance - Institutions • RBI/NABARD - Regulatory institutions - Provide refinance - training, monitoring and inspection - Commercial banks are under the control of RBI - RRBs and Cooperatives banks are under the control of NABARD

  11. Rural Finance - Institutions • Total retail rural finance outlets = 152, 692 • Number of villages/outlet = 4.31 • Rural population/outlet = 4,122 • If exclude PACS • Retail rural finance outlets = 60792 • No. of villages/outlets = 9.74 • Rural population/outlet = 10,431

  12. Rural Finance - Institutions • Low access • High overdues (low recovery) • High transaction cost • High subsidy with low interest rate • Savings ignored • Target oriented or supply driven • Low margin or loss • Low sustainability

  13. Design of Official Rural Financial Services

  14. Primary Features of the Old and New Paradigms

  15. Primary Features of the Old and New Paradigms (Contd…)

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