UNIT 5: Private Sectors and Micro Finance PDF

UNIT PRIVATE SECTORS AND MICRO FINANCE Names of Sub-Units Agricultural Credit - Banking Reforms and Rural Credit - National Bank for Agriculture and Rural Development (NABARD) - The District Industries Center (DIC) - Small Industries Development...

UNIT PRIVATE SECTORS AND MICRO FINANCE Names of Sub-Units Agricultural Credit - Banking Reforms and Rural Credit - National Bank for Agriculture and Rural Development (NABARD) - The District Industries Center (DIC) - Small Industries Development Bank of India (SIDBI) Importance and role of rural banking - Priority Sector lending - Short Term Loans / Credit: Crop Loan, Gold Loan, Loan against Warehouse Stock, Kisan Credit Card, Long Term loans: Agricultural Land Purchase, Farm Mechanization, Bio - Gas, Cold Storage. Meaning of Micro Finance Overview of Microfinance Development of Microfinance Products - Micro Finance v/s Macro Finance: Types of Products - Savings, Objectives - Microinsurance, Regulation of Microinsurance; Insurer - MFI Partnership Model Overview This unit explains about the Banking functions in Agricultural and in microfinance. It says how the banks perform in agricultural and rural credit. The role of NABARD, DIC, SIDBI in agricultural sector. It talks about the importance and role of rural banking. It also explains about Crop loan, Gold loan and loan against warehouse. This unit also talk about Microfinance and its development of microfinance products. Learning Objectives In this Unit you will learn –  Agricultural Credit JGI JAIN DEEM ED-T O-BE UNI VE R SI TY UNIT 5 : Private Sectors and Micro Finance  NABARD  DIC  SIDBI  Short term Loan credit  Long term loan credit  Micro finance overview  Microfinance vs Macro finance  Regulation of microinsurance  MFI Partnership Model Learning Outcomes At the end of this unit, you would:  Identify the role of Rural Banking and Micro Finance in Indian Context. Pre-Unit Preparatory Material  https://www.indiabudget.gov.in/budget_archive/es2004-05/chapt2005/chap37.pdf Table of Topics 5.1 Introduction 5.2 Agricultural credit 5.2.1 Banking Reforms and rural credit 5.2.2 NABARD 5.2.3 DIC 5.2.4 SIDBI 5.3 Priority Sector lending 5.3.1 Short term credit 5.3.1.1 Crop loan 5.3.1.2 Gold loan 5.3.1.3 Loan against warehouse 5.3.1.4 Kisan credit card 5.3.2 Long term loan 5.3.2.1 Agricultural Land purchase 5.3.2.2 Farm Mechanization 2 UNIT 5 : Private Sectors and Micro Finance JGI JAIN DEEM ED-T O-BE UNI VE R SI TY 5.3.2.3 Bio gas 5.4 Microfinance overview 5.4.1 Microfinance vs Macro Finance 5.4.2 Types of products 5.4.3 Regulation of Microinsurance 5.4.4 MFI partnership Model 5.5 Conclusion 5.1 Introduction What Is Agricultural Credit? The term agricultural credit refers to one of several credit vehicles used to finance agricultural transactions. These vehicles include loans, notes, bills of exchange, and banker's acceptances. This type of financing is specially adapted to the specific financial needs of farmers and allows them to secure equipment, plant, harvest, marketing, and do other things that are necessary to keep their farms running. 5.2 What is Rural Credit? Agriculture is the primary source of income of individuals residing in the rural regions across India. Every year, farmers and peasants need to invest a considerable amount of funds to ensure a healthy harvest. Thus, they often resort to borrowing money from moneylenders and financial institutions to fulfil their basic needs before harvest season arrives, and they can earn money by selling their crops. Thus, any loan taken for agricultural purposes or small home businesses across the rural areas in India is known as a Rural Credit. 5.2.1 Sources of Rural Credit 1. Land Development Banks These banks provide a considerable sum of money as a credit to farmers by using their land as collateral. This low-interest loan has a repayment tenure ranging between 15 and 20 years. Farmers are free to avail this loan to bear the cost of land development work, including the creation of wells or other irrigation related facilities. Still, land development credits are underutilized since most farmers remain unaware of this 3 JGI JAIN DEEM ED-T O-BE UNI VE R SI TY UNIT 5 : Private Sectors and Micro Finance source of funding. 2. Co-operative Credit Societies One of the most economical sources of funding for farmers, co-operative credit facilitates credit to small- and medium-scale farmers. These short-term credits are extended by Primary Agricultural Credit societies or PACs. Nonetheless, these societies have not been able to minimize the influence of moneylenders on the Rural Credit market. 3. Regional Rural Banks Set up by the government, regional rural banks or RRBs extend monetary assistance to marginal farmers, landless laborers, and artisans. 4. Commercial Banks Originally, commercial banks were reluctant to provide credit for agriculture due to the risks involved with such a move. However, today, these banks extend monetary help both directly and indirectly, to farmers. Direct investment in agriculture refers to short- and medium-term loans to simplify farming activities. Indirect investment, on the other hand, refers to the advances to farmers made through intermediary agencies or institutions. 5.2.2 What is NABARD? National Bank for Agriculture and Rural Development or NABARD is the main regulatory body in the country’s rural banking system and is considered as the peak development finance institution which is established and owned by the government of India. This bank aims to provide and regulate credit to the rural areas, which will be a first step towards enhancing the rural development in the country. NABARD has been given many responsibilities related to the formulation of policies, planning, and operations in agriculture and financial development. NABARD carries these responsibilities efficiently and works towards promoting and developing man industries in the rural areas like the agriculture industry, cottage industries, other small-scale industries, and rural crafts in an effort to create better infrastructure and better employment opportunities for the people living in these regions. The Government of India established this bank considering all the guidelines of the National Bank for Agriculture and Development Act of 1981. To put it in simple terms, you can say that the National Bank for Agriculture and Rural Development or NABARD is the main and specific bank of the country for agriculture and rural development. 4  UNIT 5 : Private Sectors and Micro Finance JGI JAIN DEEM ED-T O-BE UNI VE R SI TY What is the role of NABARD? Being the main regulatory body for agriculture and rural development, the National Bank for agriculture and rural development or NABARD has many important roles to play. These roles are as follows:  The National Bank for Agriculture and Rural Development or NABARD provides investment and production credit for various developmental activities and projects taking place in rural areas, which will help enhance rural development and facilitate rural prosperity. As this bank is the centre or the main financing agency for all such developmental projects, the responsibility falls on the bank to ensure that the projects receive the proper financing and promotion.  The responsibility of coordinating all the financing activities in the rural areas with all institutions involved in the developmental projects falls on the NABARD. It must stay in touch with all major institutions, including the Indian government, Reserve Bank of India or RBI, state governments, or any other major institutions that may be a part of the ongoing agriculture or rural development activities.  NABARD acts towards monitoring, formulating strategies for the rehabilitation schemes, restructuring credit institutions and training personnel, etc., through making an improvement in the credit delivery system’s absorptive capacity and building a strong institution with an aim to achieve the same.  The National Bank refinances all the financial institutions that finance the rural development projects for Agriculture and Rural Development or NABARD as it is the specific bank for looking after all agriculture and rural developments in the country.  After the bank has refinanced a developmental project or activity taking place in the rural region, the responsibility of monitoring and evaluating the project or activity also falls on the NABARD. 5.2.3 District Industry Centre The District Industry Centre (DIC) under the Directorate of Industries and Commerce offers a subsidy loan scheme for young professionals under the guidance of the Ministry of Social Justice and Empowerment. Established in 1978, District Industries Centres’ program was initiated by the Central Government to promote tiny, cottage, village, and Small-Scale 5 JGI JAIN DEEM ED-T O-BE UNI VE R SI TY UNIT 5 : Private Sectors and Micro Finance Industries (SSIs) in smaller towns and their particular areas to make them available with all the basic needs, services, and facilities. DIC’s primary focus is to generate employment in rural regions of India. District Industries Centres are managed and operated at the district level to provide all the necessary support services to entrepreneurs or first-time business owners to start their own MSMEs. DICs also promote the Registration and Development of Industrial Cooperatives. Functions of the District Industry Centre (DIC) DIC’s key functions include the following:  Arrangements for credit facilities, machinery & equipment  Development and expansion of industrial clusters  Identification of suitable schemes  Recognizing and financially supporting new entrepreneurs  Preparation of feasibility reports  Providing financial support to small units  Providing raw materials The functioning of DICs and their achievement is monitored by the Additional Chief Secretary (Industries) and Director of Industries & Commerce. Approximately, there are 14 District Industries Centres (DICs), one each in the 14 districts of the state. 5.2.4 SIDBI – Small Industries Development Bank of India & its Functions The SIDBI (Small Industries Development Bank of India) is a wholly-owned subsidiary of IDBI (Industrial Development Bank of India), established under the special Act of the Parliament 1988 which became operative from April 2, 1990. SIDBI was made responsible for administering Small Industries Development Fund and National Equity Fund that were administered by IDBI before. SIDBI is the Primary Financial Institution for promoting, developing, and financing MSME (Micro, Small and Medium Enterprise) sector. Besides focusing on the development of the Micro, Small and Medium Enterprise sector, SIDBI also promotes cleaner production and energy efficiency. SIDBI helps MSMEs in acquiring the funds they require to grow, market, develop and commercialize their technologies and innovative products. The bank provides several schemes and offers financial services and products for meeting the individual’s 6 UNIT 5 : Private Sectors and Micro Finance JGI JAIN DEEM ED-T O-BE UNI VE R SI TY requirement of various businesses. Functions of SIDBI  Small Industries Development Bank of India refinances loans that are extended by the PLIs to the small-scale industrial units and also offers resources assistance to them.  It discounts and rediscounts bills.  It also helps in expanding marketing channels for the products of SSI (Small Scale Industries) sector both in the domestic as well as international markets.  It offers services like factoring, leasing etc. to the industrial concerns in the small-scale sector.  It promotes employment-oriented industries particularly in semi-urban areas for creating employment opportunities and thus checking the relocation of people to the urban areas.  It also initiates steps for modernisation and technological up-gradation of current units. It also enables the timely flow of credit for working capital as well as term loans to Small Scale Industries in cooperation with commercial banks. It also co-promotes state-level 5.3 Role of the Rural Banking System in the process of Rural Development in India Rural banking system has created a positive effect on rural farm and non-farm output, income, and employment. It helps farmers to avail services and credit facilities and a variety of loans for meeting their production needs. With the help of credit facilities provided through rural banking system, India has achieved food security which is reflected in the abundant buffer stocks of grains. (i) However, our banking system is not completely free from shortcomings. Except commercial banks, other formal institutions have failed to develop a culture of deposit mobilisation by lending to worthwhile borrowers and effective loan recovery. Agriculture loan default rates have been chronically high as farmers have failed to pay back loans. either due to poor economic condition or lack of willingness to pay back loans. (ii) Thus, the expansion and promotion of the rural banking sector has not proceeded at line desired pace after reforms. Banks need to change their approach from just being lenders to building up relationship banking with the borrowers to improve the situation. Farmers should be encouraged to inculcating the habit of thrift and to utilise financial resources efficiently for productive purposes. 7 JGI JAIN DEEM ED-T O-BE UNI VE R SI TY UNIT 5 : Private Sectors and Micro Finance 5.3.1 What is a Short-Term Loan? A short term loan is a type of loan that is obtained to support a temporary personal or business capital need. As it is a type of credit, it involves repaying the principal amount with interest by a given due date, which is usually within a year from getting the loan. A short term loan is a valuable option, especially for small businesses or start-ups that are not yet eligible for a credit line from a bank. The loan involves lower borrowed amounts, which may range from $100 to as much as $100,000. Short term loans are suitable not only for businesses but also for individuals who find themselves with a temporary, sudden cash flow issue. 5.3.1.1 Crop Loan Agriculture is the most important sector in India. But the farmers face a lot of difficulties about procuring the best seeds to buying the best fertilizer and machinery. To help the farmers and agriculturists with the finances, the lenders are offering crop loans. Crop loan is a short-term advance that is given to the farmers and agriculturists by banks and co-operative societies. The loan amount can be used to purchase improved seeds, fertilizers, machinery etc. The crop loans are provided as agriculture is a priority sector. The loan is usually repaid in single instalment after the crop production. Crop loan is a Secured Loan, and the interest is debit on a half- yearly basis at simple rate of interest. The loans provided by any lenders and co-operative societies can be refinanced by NABARD. In India, the following banks offer Crop Loans  Union Bank of India  IDBI Bank  State Bank of India  HDFC Bank  UCO Bank  Axis Bank  Allahabad Bank  Andhra Bank  Bank of Baroda  Bank of India  Bank of Maharashtra 8 UNIT 5 : Private Sectors and Micro Finance JGI JAIN DEEM ED-T O-BE UNI VE R SI TY  Canara Bank  Central Bank of India  Corporation Bank  Dena Bank 5.3.1.2 Gold Loan A gold loan is a secured loan wherein the borrower keeps their gold, ranging from 18K to 24K, with a bank or a financial institution as security and avails capital against it. On comparative terms, a gold loan can be understood as a similar concept to a “mortgage loan” in which the owner keeps their house or property as mortgage with the bank and takes a loan against it to fulfill their need for capital. How to opt For a Loan Using Digital Gold? With the introduction of digital gold products, people now have access to a more lucrative option to reduce the overall interest burden on gold loans. You could consider liquidating your physical pure gold (available as “vedhnis”, biscuits, coins and bars) and converting the cash into the digital sovereign gold bonds (SGBs) form. This would help you in two ways: one in securing the funds required and second in earing an interest income of 2.5% annually on the face value even during the loan term, thus reducing the overall cost of credit. For instance, SBI’s interest rate for loan against SGBs is 9.25% but as the underlying is an SGB, the effective cost would be 6.75% per annum 5.3.1.3 Loan against Warehouse Receipt ICICI Bank's Rural, Micro banking and Agribusiness group caters to the financial needs of those involved in the commodities business, such as farmers, traders, processors and aggregations. A credit line of up to Rs. 300 million is offered for agricultural operations with agricultural commodities as securities, including those maintained in demat form. Features Limit: Maximum of Rs. 300 million. The limit is assessed based on financial parameters and proof of dealing in commodities. Tenure: Maximum of 12 months. The tenure of each tranche varies from 3 to 12 months depending on the commodity financed. 9 JGI JAIN DEEM ED-T O-BE UNI VE R SI TY UNIT 5 : Private Sectors and Micro Finance Benefits  Speedy loan sanction and disbursement with minimum documentation  No additional security other than Agricultural commodities  Attractive rate of interest  Speedy release of commodities after repayment of dues  Loans available at non-branch locations also  Loans extended in government/private warehouses 5.3.1.4 Kisan Credit Card  The Kisan Credit Card scheme is a Government of India scheme which provides farmers with timely access to credit. The Kisan Credit Card (KCC) scheme was launched in 1998 with the aim of providing short-term formal credit to farmers and was created by NABARD (National Bank for Agriculture and Rural Development).  The KCC scheme was introduced to ensure that the credit requirements for farmers in the agriculture, fisheries and animal husbandry sector were being met. This was done by helping them avail short-term loans and provide them with a credit limit to purchase equipment and for their other expenses as well.  Moreover, with the help of KCC, farmers are exempt from the high interest rates of the regular loans offered by banks as the interest rate for KCC starts as low as 2% and averages at 4%. With the help of this scheme, farmers can repay their loans depending on the harvesting period of their crop for which the loan was given. Purpose The scheme aims at providing term loan to small/marginal farmers including share croppers /tenant cultivators to purchase agricultural land as well as fallow and waste land production /to develop and cultivate. Eligibility  Small & Marginal Farmers who own a maximum of 5 acres of non-irrigated land or 2.50 acres of irrigated land including the land proposed to be purchased.  Share croppers/tenant Farmers cultivating up to 2.50 acres of irrigated land or 5 acres of un-irrigated land including the land proposed to be purchased. 10 UNIT 5 : Private Sectors and Micro Finance JGI JAIN DEEM ED-T O-BE UNI VE R SI TY  Agri. Entrepreneurs who does not own agricultural land but have agricultural background are also eligible to avail loan for purchase of agricultural land, provided the respective state laws permit, non-agriculturist to purchase agricultural land.  Farmers should remain under the category of small farmer (5 acres of non-irrigated land or 2.50 acres of irrigated land) even after purchasing the proposed land. Quantum of Loan The quantum of loan will depend upon 1. valuation as assessed by the Branch / valuer 2. guidance value / Circle rate fixed by the State or 3. the registration value whichever is lower plus value of stamp duty, registration charges for sale/ mortgage deed. Maximum amount Rs 10.00 lacs. Margin The margin shall be minimum of 20%. Security  As land being financed by the bank is a primary security, mortgage of land proposed to be purchased has to be done irrespective of quantum of loan.  Also Mortgage of land presently owned, if any, as collateral security.  The loan amount should not exceed the value of present land + value of the proposed land to be purchased.  Hypothecation of crops grown from time to time on the land. Repayment Period The loan is to be repaid in maximum 10 years in half yearly / yearly installments including a maximum moratorium period of 24 months. Forms & Documents Appropriate DPN note, Deed of Guarantee, Letter of continuity, , Hypothecation agreement, Declaration/undertaking for Agriculture advance, Mortgage deed ,Letter of general lien and setoff, Undertaking from borrower/Guarantor for disclosure to CIBIL, and 11 JGI JAIN DEEM ED-T O-BE UNI VE R SI TY UNIT 5 : Private Sectors and Micro Finance any other document stipulated in sanction. 5.4 What is Microfinance? Microfinance generally refers to the provision of basic financial services such as loans, saving accounts and insurances for low-income but economical active people. In most instances the term microfinance refers to the provision of small loans (=micro credits) for micro-entrepreneurs. The UN believes microfinance to play a central role in the battle against poverty and proclaimed the year 2005 as the “International Year of Microcredit”. The idea of microfinance, however, is not new but can be traced back to the principle of self-help and solidarity which was devised by savings banks and cooperative banking groups (e.g. Raiffeisen) 150 years ago. 5.4.1 Why Microfinance? Around two thirds of the world population is cut off from the conventional financial market. Low-income people typically have no collateral and therefore no chance to take out a loan, to save money or to invest for the future. Women especially are often considered as not credit-worthy by banks. The purchase of a small plot of land, a sewing machine or a market stand for example would help many people to put their ideas into practice and to escape poverty. Often, the only alternative are local moneylenders, so called “loan sharks”, who charge extortionate interest rates of up to several hundred percent a month. This is where microfinance comes into its own. Thanks to a regulated access to money microfinance offers three characteristics:  Security,  Economic growth,  The opportunity, to take one´s future into one´s own hands. 12 UNIT 5 : Private Sectors and Micro Finance JGI JAIN DEEM ED-T O-BE UNI VE R SI TY Microfinance Microfinance services include microcredit, micro savings, and microinsurance. Microfinance aims to make individuals self-sufficient by offering timely funding, helping them learn skills, and establishing a stable means of livelihood. Microfinance starts by educating potential borrowers about the basics of how money and credit work, how to budget and manage debt, and how to best utilize cash flows. Individuals are then provided access to capital, at generous terms: lower-than-average interest rates, or the waiving of collateral. Default risk for the lenders is mitigated by pooling borrowers in groups (of, say, five or 10 people); peer pressure often improves repayment rates. Pooling also builds the individuals' credit rating and enables assistance among group members. Macrofinance Macrofinance aims for economic development more broadly, working on a larger scale to achieve widespread benefits that involve entire populations and multiple entities. For example, a state or province may offer multi-year tax benefits to businesses, which set up factories or offices in a city or region, which hire residents and use local suppliers or services. Financing for the endeavour is assisted by banks or through public-private partnerships. 5.4.2 Types of microfinances Here are different types of microfinances: Microcredit Micro credit is a part of the larger microfinance industry which focuses on providing individuals having low income with credit, savings, insurance, and other possible financial services. The term micro in microcredit indicates the small amount of money that the businesses borrow or save. The institutions offering microcredit may ask for different interest rates than the traditional loan providing institutions. The reason behind this can be the difference between the cost of providing small loans in rural areas and the cost of providing large loans in developed urban areas. Individuals with low income in rural areas may require a small amount of money through microcredits. For example, a farmer may require small funds to buy seeds for the season. In this case, the microcredit institutions can offer the farmer small lines of credit and small loans. 13 JGI JAIN DEEM ED-T O-BE UNI VE R SI TY UNIT 5 : Private Sectors and Micro Finance Microloans Many entrepreneurs or individuals may require a small amount of loan to start their business. Microloans are short-term loans in small amounts that microfinancing institutions offer to individuals. Individuals who avail microloans can be self-employed, manufacturers, traders or small retailers, women entrepreneurs, and individuals with minimum wages or less. Microloans can be helpful in various activities related to business, such as launching a new small business, paying salaries to the newly appointed employees, and maintaining cash flow. The main objective of financing a microloan is to promote socio-economic development and to support new startups. Microinsurance Microinsurance targets individuals in the informal sector and is available for people with low income. There can be some national programs that fulfils local requirements and come under the category of microinsurance. It is the practice in which the institutions providing insurance can divide the traditional insurance into much smaller terms. Microinsurance can be helpful in onetime events, such as a one-day trip or emergency health requirements. Individuals and businesses with a few assets can benefit from microinsurance as it offers coverage to them. Many microinsurance providers also cover business risks, such as the loss of crops for an agricultural operation. Micro savings Micro savings are the savings accounts that allow individuals and businesses to save money in smaller amounts or increments. Many individuals with low income may find it difficult to save money. Micro savings allow them to remove the difficulties they face in making savings. Interest in these types of savings accounts may vary depending on different factors. Micro savings can offer many benefits like zero service fees, absence of criteria for minimum deposit and also allows flexible withdrawals. Many institutions offer micro savings through mobile saving applications. Individuals and businesses trying to develop a regular saving habit can benefit from the method of micro savings.5 4.3 What is Micro insurance? Microinsurance products offer coverage to low-income households or to individuals who have little savings. It is tailored specifically for lower valued assets and compensation for 14 UNIT 5 : Private Sectors and Micro Finance JGI JAIN DEEM ED-T O-BE UNI VE R SI TY illness, injury, or death. How Microinsurance Works As a division of microfinance, microinsurance looks to aid low-income families by offering insurance plans tailored to their needs. Microinsurance is often found in developing countries, where the current insurance markets are inefficient or non-existent. Because the coverage value is lower than the usual insurance plan, the insured people pay considerably smaller premiums. Microinsurance, like regular insurance, is available for a wide variety of risks. These include both health risks and property risks. Some of these risks include crop insurance, livestock/cattle insurance, insurance for theft or fire health insurance, term life insurance, death insurance, disability insurance, and insurance for natural disasters, etc. Like traditional insurance, microinsurance functions based on the concept of risk pooling, regardless of its small unit size and its activities at the level of single communities. Microinsurance combines multiple small units into larger structures, creating networks of risk pools that enhance both insurance functions and support structures. 5.4.4 MFI partnership Model "Microfinance: Credit Lending Models" is an attempt to document the various models currently being used by microfinance institutions throughout the world. A total of 14 models are described below. They include, associations, bank guarantees, community banking, cooperatives, credit unions, grameen, group, individual, intermediaries, NGOs, peer pressure, ROSCAs, small business, and village banking models. The models are loosely related with each other, and best and sustainable microfinance institutions have features of two or more models in their activities. Many of these models are indeed "formalized" versions of informal financial systems. Informal systems have historical precedents that predate modern banking systems. They are still in existence today used mostly by low-income households who do not have access to formal banks. GDRC has developed a continuum of informal credit suppliers that clearly illustrates the link between such informal systems and the models illustrated below. 15  JGI JAIN DEEM ED-T O-BE UNI VE R SI TY UNIT 5 : Private Sectors and Micro Finance The models were developed through extensive field work/observations and interviews carried out in India, Thailand, Philippines, Indonesia and Sri Lanka, and includes information from literature as well. Associations Model This is where the target community forms an 'association' through which various microfinance (and other) activities are initiated. Such activities may include savings. Associations or groups can be composed of youth, women; can form around political/religious/cultural issues; can create support structures for microenterprises and other work-based issues. In some countries, an 'association' can be a legal body that has certain advantages such as collection of fees, insurance, tax breaks and other protective measures. Distinction is made between associations, community groups, people’s organizations, etc. on one hand (which are mass, community based) and NGOs, etc. which are essentially external organizations Bank Guarantees Model As the name suggests, a bank guarantee is used to obtain a loan from a commercial bank. This guarantee may be arranged externally (through a donor/donation, government agency etc.) or internally (using member savings). Loans obtained may be given directly to an individual, or they may be given to a self-formed group. Bank Guarantee is a form of capital guarantee scheme. Guaranteed funds may be used for various purposes, including loan recovery and insurance claims. Several international and UN organizations have been creating international guarantee funds that banks and NGOs can subscribe to, to on lend or start microcredit programmes. Summary (Key pointers from the Unit to be covered in summary section (7 to 10 Points))  The term agricultural credit refers to one of several credit vehicles used to finance agricultural transactions. These vehicles include loans, notes, bills of exchange, and banker's acceptances.  Agriculture is the primary source of income of individuals residing in the rural regions across India. Every year, farmers and peasants need to invest a considerable amount of 16  UNIT 5 : Private Sectors and Micro Finance JGI JAIN DEEM ED-T O-BE UNI VE R SI TY funds to ensure a healthy harvest.  One of the most economical sources of funding for farmers, co-operative credit facilitates credit to small- and medium-scale farmers.  National Bank for Agriculture and Rural Development or NABARD is the main regulatory body in the country’s rural banking system and is considered as the peak development finance institution which is established and owned by the government of India.  NABARD takes action towards monitoring, formulating strategies for the rehabilitation schemes, restructuring credit institutions and training personnel, etc., through making an improvement in the credit delivery system’s absorptive capacity and building a strong institution with an aim to achieve the same.  SIDBI was made responsible for administering Small Industries Development Fund and National Equity Fund that were administered by IDBI before. SIDBI is the Primary Financial Institution for promoting, developing, and financing MSME (Micro, Small and Medium Enterprise) sector.  Agriculture loan default rates have been chronically high as farmers have failed to pay back loans. either due to poor economic condition or lack of willingness to pay back loans.  Crop loan is a short-term advance that is given to the farmers and agriculturists by banks and co-operative societies.  Microfinance generally refers to the provision of basic financial services such as loans, saving accounts and insurances for low-income but economical active people.  Macro-finance aims for economic development more broadly, working on a larger scale to achieve widespread benefits that involve entire populations and multiple entities Self-Assessment Questions Short answer: 1. What is agricultural credit? 2. What is Rural Credit? 17 JGI JAIN DEEM ED-T O-BE UNI VE R SI TY UNIT 5 : Private Sectors and Micro Finance 3. Why is NABARD so important? 4. What is short term loan? 5. What is crop loan? Medium questions: 1. Explain the sources of Rural credit. 2. Criticize the role of NABARD. 3. Justify the Functions of the District Industry Centre. 4. Explain the role of the rural banking system in the process of rural development in India. 5. Interpret the types of micro finance Long questions: 1. How does microinsurance work? 2. Classify the Short term loan. 3. Implement the Functions of SIDBI. 4. Design the Sources of rural credit. 5. Difference between Microfinance and Macro finance. 5.5 POST-UNIT READING MATERIAL  Book Chapters: E Book Chapters 18