Part 2

Rural Finance In Indian Economy
EXECUTIVE SUMMARY
In India, over 65% of the population resides in village. And approx 70% of the villagers do not
have bank accounts. But finance is not completely absent. Just the sources of supply are
informal like Moneylenders. Moneylenders are said to control one third of all rural loans, and
with considerable strength, given their personal acquaintance with the local population and its
distribution networks. Since these money-lenders had virtual monopoly in supplying credit in
rural areas, the poor were often subjected to exploitation.
A number of banks and financial companies have begun to specialize in offering credit to the
people in rural areas. Finance in this sector has added the benefit of supporting further work in
regional areas. As bank and financial services continue to extend their service in rural India
they are generating employment in the vicinity. Rural finance is a line of credit specially
intended for the requirements of the agricultural industry. Ranging from mortgage assistance to
land development and farming equipments, these credit plans are significant aspect of rural and
semi-urban support.
There are mainly two sources available to the farmers Private agencies & institutional. Private
agencies means relatives, landlords, agricultural moneylenders, professional private
moneylenders, traders & commission agents, others. Where institutional agencies are
Commercial banks, The State Bank, Co-operative Societies & land mortgage banks,
Agricultural finance Corporation.
This report consists of a detail study of Rural Finance in Indian Economy along with the
detailed study analysis of the perception of youth towards Rural Finance. What are the
problems, various institution and schemes, and suggestions for government and the financial
institution are incorporated in the report.
The data is collected with the help of questionnaires. In all 100 People were surveyed. Based
on the responses, the analysis, the observations and suggestions were given. The suggestions
were Interest rates must be different for different categories, Proper infrastructure
development, Proper insurance schemes.
[1]
RESEARCH METHODOLOGY
1. STATEMENT OF THE RESEARCH
Perception of youth towards Rural Financing and its role in Indian Economy
2. FORMULATING THE RESEARCH PROBLEM

a) Unit of analysis: Youth
b) Characteristics of interest: Their perception towards Rural Finance
c) Time and space boundary: 6 Months
d) Environment conditions: Prevailing banking service in India.
3.OBJECTIVES OF THE RESEARCH

To understand the role of Rural Finance in Indian Economy.
To know various Schemes offered through Rural Finance.
To know about the awareness level of Rural Finance among youth in the city of
Mumbai.
To find out perception of youth towards Rural Finance.
4. HYPOTHESIS
A hypothesis is used in an experiment to define the relationship between two variables.
The purpose of a hypothesis is to find the answer to a question.
Research Hypothesis: To know the awareness amongst youth about various schemes
offered in Rural Finance.
Null Hypothesis (H0): There is no significant awareness among youth about the
various schemes offered in Rural Finance.
Alternative Hypothesis (H1): There is significant awareness among youth about the
various schemes offered in Rural Finance.
5. SOURCES OF DATA
The data has been collected from two sources i.e. Primary and Secondary.
Sources
Of Data
Primary Secondary
Data [2]
Data
Primary data are those which are collected for the first time and original in character.
Primary data is collected through observations, interviews and surveys. A questionnaire
techniques with the respondents was used to collect the required primary data.
Questionnaire is the primary data for this research.
Secondary data are those which are already collected by someone for some purpose and
are available for the present study. Secondary data are collected from the books,
journals, articles, websites, magazines and other such source. In this project,
information from internet consist a major part of secondary data.
6. RESEARCH DESIGN
There are two types of research
Research
design
Exploratory Conclusive
The findings from this research are considered to be conclusive it is applied to generate
findings that are practically useful in reaching conclusions or decision-making.
Conclusive Research is further classified into two:
Descriptive
Conclusive
Casual
[3]
Descriptive studies are used to describe various aspects of the phenomenon it is used to
describe characteristics or behaviour of sample population. In our research it is a
Conclusive Research as it studies the perception of youth towards Rural Finance.
7. DETERMINING SAMPLE DESIGN

Research instrument-Questionnaire
Sample area-Western Suburbs of Mumbai
Sampled population- 18-25 years
Sample size- 100
Sample type-Non probability sampling
8. COLLECTING OF DATA
Survey method used for conducting the research is as follows:
Questionnaire: This is one of the methods of survey in which 100 consumers were
interviewed for the research.
9. ANALYSIS OF THE DATA

Once the important task of collecting the data is completed, it is required that the data
should be systematically analyzed from all the aspects. The data should be analyzed by
tabulating and drawing statistical inferences. This makes the information collected
appropriate and easy to understand.
10. PREPARING THE RESEARCH PROJECT

After collecting and analyzing the data from all the aspects, a final report was prepared
11. LIMITATIONS OF THE PROJECT

The sample size was 100 consumers which is quite less. So data accuracy was
slightly compromised.
Larger the sample size, more accurate is the result. But as the time was less
available, only 100 sample size was chosen.
Owing to the time limitation, I only searched a few number of journals. This
may leave some other prominent empirical studies out.
Generally he respondents were busy in their work and were not much interested
in responding rightly as they were students.
[4]
2.0 Meaning of an Underdeveloped Economy:
There is a big difference between underdeveloped and developed countries. The United
Nations group of experts states, We had some difficulty in interpreting the term
underdeveloped countries. We frankly consider that, per capita real income is low when
compared with the per capita real incomes of the United States of America, Canada, Australia
& Western Europe. Briefly a poor country.
The term underdeveloped countries is relative. In practical, those countries which
have real per capita incomes less than a quarter of the per capita income of the United States,
are underdeveloped countries. But recently UN publication prefer to describe them as
Developing economies. The term developing economies signifies that though still
underdeveloped, the process of development has been initiated in these countries. Thus, we
have two economies developing economies & developed economies. The World Bank
issued in its World Development Report (1991) classified the various countries on the basis of
Gross National Product (GNP) per capita. Developing countries are divided into: (a) Low
income countries with GNP per capita of $580 and below in 1989; and Middle income
countries with GNP per capita ranging between $ 580 and $ 6,000. As against them, the High-
income Countries which are mostly members of the Organisation for Economic Co-operation
and development (OECD) and some others have GNP per capita of more than $ 6,000.
The above data given in the table noted that in 1989 low income countries comprise
nearly 57 percent of the world population (2,948 million), but account for only 5 percent of
total world GNP. The middle income countries, which are less developed than the highly
developed than the low income countries comprise about 21 percent of world population but
account for 11 percent of world GNP. Taking these two groups which are popularly described
as developing economies or underdeveloped economies, it may be stated that they comprise
over three-fourths of the world population but account for about one-sixth of the world GNP.
Most countries of Asia, Africa, Latin America and some countries of Europe are included in
them.
Distribution of World Population & World GNP among various groups of Countries in
1989
[5]
GNP Total GNP Per

(Billion Population Capita
US $) (million) (US $)
1. Low Income Economies 981 (4.7) 2,948 330
(56.6)
2. Middle Income 2,253 1,105 2,040
Economies (10.9) (21.2)
3. High Income Economies 15,230 831 (16.0) 18,330
(73,4)
4. Other Economies ___ 323 (6.2) ___
World 20,736 5,206 3,980

(100.0) (100)
India 283 (1.4) 832 (15.9) 340
India with its population of 832 million in 1989 and with its per capita income of $340 is
among poorest of the economies of the world. It had a share of 15.9 per cent in world
population, but a little more than 1 percent of world GNP.
Three observation made here regarding the U.N. classification of developed and developing
countries on the basis of per capita income. First, there is gross inequality of incomes between
the rich and the poor countries. Second, the gap in per capita income (and naturally in the level
of living) between the rich and poor countries is even widening over the yearsthe annual rate
of growth of per capita income of the rich countries was higher during 1965-89 as compared
with the poor countries. More recently, the growth rate among low-income countries has also
shown an increase and if this is sustained, the gap may show a decline over a period. Third, all
the high income countries are not necessarily developed countries. For instance, the high
income oil-exporting countries have high per capita income but this is mainly due to their
exports of oil; really speaking, they are not developed economies. Recently, with a decline in
world oil prices, the GNP per capita has started showing a decline in this group.
[6]
Definition:
A country which has good potential prospects for using more capital or more labour or more
available natural resources, or all of these, to support its present population on a higher level of
living or if its per capita income level is already fairly high, to support a large population on a
not lower level of living. As per this definitions the problem of development is mainly the
poverty and prosperity. The basic criterion then becomes whether the country has good
potential prospects of raising per capita income, or of maintaining an existing high level of per
capita income for an increased population.
2.1 Basic Characteristics Of The Indian Economy As An Underdeveloped

Economy:
India is an underdeveloped economy. It is a vast country having an area of 3.3 million sq. km.
It has almost 5,76,000 villages. The population of India is widely scattered over villages and
towns. Nearly 75% of the population lives in rural & semi urban areas, while the rest lives in
towns. There is doubt that the bulk of its population lives in conditions of misery. Poverty is
not only acute but is also a chronic malady in India. At the same time, there exist unutilized
natural resources. It is, therefore, quite important to understand the basic characteristics of the
Indian economy, treating it as one of the underdeveloped but developing economies of the
world.
1. Low per capita income:- Underdeveloped economies are marked by the existence of
low per capita income. The per capita income of an India is lowest in the world. The
per capita income in Switzerland in 1989 was about 88 times, in West Germany about
60 times, in U.S.A. 61 times and in Japan 70 times of the per capita income in India. It
is also important that developed economies are growing at a faster rate than the Indian
economy and as a consequence, the disparity in the levels of income has become wider
during period 1960-89.
2. Occupational pattern:- Primary producing. One of the basic characteristics of an

underdeveloped economy is that it is primary producing. A very high proportion of
working population is engaged in agriculture, which contributes a very large share in
the national income. In India, in 1981, about 71 per cent of the working population was
engaged in agriculture and its contribution to national income was 36 per cent. In Asia,
[7]
Africa and Middle East countries from two-thirds to more than four-fifths of the
population earn their livelihood from agriculture, and in most Latin American countries
from two-thirds to three-fourths of population engaged in agriculture in developed
countries is much less than the proportion of population engaged in agriculture in
underdeveloped countries.
3. Heavy Population pressure:- The main problem in India is the high level of birth rates
coupled with a falling level of death rates. The rate of growth of population which was
about 1.31 per cent per annum during 1941-50 has risen to 2.11 per cent during 1981-
91. The chief cause of this rapid spurt to population growth is the steep fall in death
rate from 49 per thousand during 1911-20 to 9.6 per thousand in 1990; as compared to
this, the birth rate has declined from about 49 per thousand during 1911-20 to 29.9 per
thousand in 1990. The fast rate of growth of population necessitates a higher rate of
economic growth in order to maintain the same standard of living of the population. To
maintain a rapidly growing population, the requirements of food, clothing, shelter,
medicine, schooling, etc. all rise. Thus, a rising population imposes greater economic
burdens and, consequently, society has to make a much greater effort to initiate the
process of growth.
4. Prevalence of chronic unemployment and underemployment:- In India labour is an

abundant factor and, consequently, it is very difficult to provide gainful employment to
the entire working population. In developed countries, unemployment is of a cyclical
nature and occurs due to lack of effective demand. In India unemployment is structural
and is the result of a deficiency of capital. The Indian economy does not find sufficient
capital to expand its industries to such an capacity that the entire labour force is
absorbed.
5. Low rate of capital formation:- Another basic characteristic of the Indian economy is
the existence of capital deficiency which is reflected in two ways first, the amount of
capital per head available is low; and secondly, the current rate of capital formation is
also low. Following table reveals that gross capital formation in India is less than that
of developed countries.
[8]
Gross Domestic Investment and Saving (As per cent of Gross Domestic Product)
Gross Domestic Gross Domestic

Investment Saving
1965 1989 1965 1989

Japan 28 33 30 34
Australia 26 26 23 23
Germany 23 22 23 27
U.S.A. 12 15 12 13
U.K. 13 21 12 18
India 17 24 15 21
As per Colin Clark to maintain the same level of living a country requires an additional
investment of 4 percent per annum if its population increases at the rate of 1 percent per
annum. In a country like India where the rate of population growth is 2.11 percent (during
1981-91), about 8 percent investment is needed to offset the additional burdens imposed by a
rising population. Thus, India required as high as 14 percent level of gross capital formation in
order that it may cover depreciation and maintain same level of living. A still higher rate of
gross capital formation alone can give a way for economic growth to improve living standard
of the population.
3.0 History Of The Rural Economic Structure Of India
3.1 Indian Economy in the Pre-British period:-

The Indian economy in the pre-British period consisted of isolated and self-sustaining villages
on the one hand, and towns, which were the seats of administration, pilgrimage, commerce and
handicrafts, on the other. Means transport & communication were highly underdeveloped and
so the size of the market was very small.
[9]
a. The structure and organization of villages: The village community was based on a
simple division of labour. The farmers cultivated the soil and tended cattle. Similarly,
there existed classes people called weavers, goldsmiths, carpenters, potters, oil pressers,
washer men, cobblers, barber-surgeons, etc. All these occupations were hereditary and
passed by tradition from father to son. Most of the food produced in the village was
consumed by the village population itself. The raw materials produced from primary
industries were the feed for the handicrafts. Thus interdependence of agriculture and
hand industry provided the basis of the small village republics to function
independently. The villages of India were isolated and self-sufficient units which
formed an enduring organization. But this should not lead us to the conclusion that
they were unaffected by wars or political decisions. They did suffer the aggressors and
were forced to submit to exactions, plunder and extortion, but the absence of the means
of transport and communications and a centralized government helped their survival.
b. Classes of Village India: There were three distinct classes in village India: (i) the
agriculturists, (ii) the village artisans and menials, and (iii) the village officials. The
agriculturists could be further divided into the land-owning and the tenants. Labour
and capital needed was either supplied by the producers themselves out of their
supplied by the producers themselves out of their savings or by the village
moneylender. These credit agencies supplied finance at exorbitant rates of interest but
since the moneylender and the landlord were the only sources of credit, the peasants
and even the artisans were forced to depend on them. The village artisans and menials
were the servants of the village. Most of the villages had their panchayats or bodies of
village elders to settle local disputes. The panchayats were the court of justice.
3.2 Indian Population an Overview:-

India is one of the most populated countries in the world, next only to China. Although
India occupies only 2.4% of the total area of the world it supports over 15% of the world
population, as revealed by statistics. India is land of diversity, spread across its cultures,
landscape, languages and religion. India has been invaded from the Iranian plateau, Central
Asia, Arabia, Afghanistan, and the West. The Indian people have absorbed these influences
[10]
producing a remarkable racial and cultural synthesis. Religion, caste, and language are major
determinants of social and political organization in India today. The government has
recognized 16 languages as official; Hindi is the most widely spoken.
Although Hinduism is the popular religion, comprising 83% of the population, India is also
home to one of the largest population of Muslims in the world--- more than 120 million. The
population also includes Christians, Sikhs, Jains, Buddhists, and Parsis. The caste system
reflects Indian historical occupation and religiously defined hierarchies. Traditionally, there are
four castes identified, plus a category of outcastes, earlier called "untouchables" but now
commonly referred to as "dalits," the oppressed. In reality, however, there are thousands of
sub-castes and it is with these sub-castes that the majority of Hindus identify. Despite
economic modernization and laws countering discrimination against the lower end of the class
structure, the caste system remains an important factor in Indian society. Poverty is one of the
major problems facing India. An estimated 30-40 percent of the population lives in poverty.
Four out of five of India's poor live in rural areas. About 70% of the people live in more than
550,000 villages, and the remainder in more than 200 towns and cities.
4.0 Natural Resources In Process Of Economic Development In Rural India:

To achieve the development in national output, it is essential to combine natural resources,
human resources & capital. The existence or the absence of favourable natural resources can
facilitate or retard the process of economic development. Natural resources include land, water
resources, fisheries, mineral resources, forests, marine resources, climate, rainfall and
topography.
1. Land Resources: The total geographical area of India is about 329 million hectares, but
statistical information regarding land classification is available for only about 305
million hectares; this information is based partly on village papers and partly on
estimates. We can explain land utilization pattern from the following table:-
[11]
Land utilization pattern, 1986-87 (million hectares)

Particulars Area Percent
1. Total geographical area 329 --
2. Total reporting area 305 100
3. Barren land not available for cultivation 41 13
4. Area under forests 67 22
5. Permanent pastures and grazing land 12 4
6. Culturable waste lands, etc. 19 6
7. Fallow lands 26 9
8. Net area sown 140 46
9. Area sown more than once 37 12
10. Total cropped area (8+9) 177 58
2. Forest Resources: Forest are an important natural resource of India. They have a
moderating influence against floods and thus they protect the soil against erosion. They
provide raw materials to a number of important industries, namely, furniture, matches,
paper, rayon, construction, tanning, etc. The total area under forests was 67 million
hectares in 1986-87 which was about 22 percent of the total geographical area, a recent
estimate has put it at 75 million hectares or 23 percent of the total geographical area.
Forests in India are mostly owned by states (95%); a small portion is under the
ownership of corporate bodies and private individuals.
3. Water Resources: India is one of the wettest countries in the world, with average annual
rainfall of 1100 m.m. Indias water policy, since Independence, has mainly
[12]
concentrated on highly visible large dams, reservoirs and canal systems, but has
ignored minor water works such as tanks, dugwells and tubewells.
4. Fisheries: Broadly speaking, fishery resources of India are either inland or marine. The
principal rivers and their tributaries, canals, ponds, lakes, reservoirs comprise the inland
fisheries. The rivers extend over about 17,000 miles, and other subsidiary water
channels comprise 70,000 miles. The marine resources comprise the two wide arms of
the Indian Ocean and a large number of gulf and bays along the coast. About 1.8
million fishermen draw their livelihood from fisheries, though they generally live on
the verge of extreme poverty. Out of a total catch of 3 million tones of fish in 1988-89,
over 1 million tones came from inland fisheries and nearly 2 million tones from marine
sources. India is the seventh largest producer of fish in the world and is second in
inland fish production, which contributes 45 per cent of total production in the country.
Fish production reached the level of 5.4 million tonnes in 1997-98, comprising 3.0
million tonnes of marine fishery and 2.4 million tonnes of inland fishery and is
expected to reach 5.6 million tonnes in 1998-99 with 3.0 million tonnes of marine
fishery and 2.6 million tonnes of inland fishery, respectively. During 1998-99, the
export of marine products came down to US$ 1,038 million from US$ 1,208 million
during 1997-98
4.1 Infrastructure In Process Of Economic Development In Rural

India:
The prosperity of a Rural India depends directly upon the development of agriculture and
industry. Agricultural production, however, requires power, credit, transport facilities, etc.
Industrial production requires not only machinery & equipment but also skilled man-power,
management, energy, banking facilities, marketing facilities, transport services which include
railways, roads, shipping, communication facilities, etc. All these facilities and services
constitute collectively the infrastructure of an economy and the development and expansion of
these facilities are an essential pre-condition for increasing agricultural & industrial production
in a rural area.
[13]
Types of Infrastructural facilitiesoften referred towards economic and

social development of rural India:
1. Energy: The most important single factor which can act constraint on economic growth
of a country is the availability of energy. There is a direct correlation between the
degree of economic growth, the size of per capita income and per capita consumption
of energy. Since energy is an essential input of all productive economic activity, the
process of economic development inevitably demands increasing higher levels of
energy consumption. There are broadly two sources of energy commercial energy &
non-commercial energy. Following are the various commercial energy:- coal & lignite,
Oil & gas, Hydro-electric resource, Uranium. & non-commercial energy are Fuelwood,
Agricultural wastes, Animal dung.
2. Power: Electric power, which is one form of energy, is an essential ingredient of

economic development and, it is required for commercial and non-commercial uses.
Commercial uses of power refer to the use of electric power in industries, agriculture
and transport. Non-commercial uses include electric power required for domestic
lighting, cooking, use of mechanical gadgets like the refrigerators, air conditioners, etc.
With the growth of population and with the increase in the use of modern gadgets in
daily life, it is quite natural that the demand for electricity for domestic use should grow
at a fast rate.
3. Transport: If agriculture and industry are regarded as the body and the bones of the
economy, which help the circulation of men and materials. The transport system helps
to broaden the market for goods and by doing so, it makes possible large-scale
production through division of labour. It is also essential for the movement of raw
materials, fuel, machinery etc., to the places of production. The more extensive and
continuous the production in any branch of activity the greater will be the need for
transport facilities. Transport development helps to open up remote regions and
resources for production. Regions may have abundant agricultural, forest and mineral
resources but they cannot be developed if they continue to be remote and inaccessible.
[14]
Modes of transport & communication facilities:

Indian Railways: The most important form of transport system in India is the
Indian railways, which is also the countrys largest single undertaking with a capital
investment of around Rs. 15,000 crores. In 1950-51, railway route length was 53,600 kms
but by 1990-91 it had increased to nearly 62,400 kms-an increase at the rate of 0.4 percent
per annum.
Roads & Road Transport: Road transport plays an important role in rural economy of
country, since it is most suitable for short distances. It has also the advantage of door-to-
door service, flexibility, speed and reliability. The utility of other modes of transport such
as railways, internal waterways, ports, etc. increase when linked to the road transport
system. Road construction and maintenance generate sizeable employment opportunities
factor of great importance in the context of growing population and growing
unemployment in the country. The rural road network now connects about 70 percent of
our villages.
Inland water transport: Inland water transport is the cheapest mode of transport, for both
long and short distances, so far as the points of origin and destination of traffic are
concerned. It is cheap as energy consumption is low. India has over 14,500 kms. Of
navigable inland waterways comprising a variety of river systems, canals, backwaters,
creeks, etc.
4. Communications: The communication system comprises posts and telegraphs,

telecommunication system, broad casting, television and information services. By
providing necessary information about the markets and also supplying necessary
motivation, the communication system helps to bring buyers and sellers together
effectively and helps to accelerate the growth of the economy.
[15]
5.0 Microfinance In An Indian Context:-

Microfinance institutions (MFIs), specialised financial institutions that serve the poor, derive
from the success of some micro enterprise credit programmes performed mainly by
practitioners in developing countries. microFinance (mF) is being practiced as a tool to attack
poverty the world over. During the last two decades, substantial work has been done in
developing and experimenting with different concepts and approaches to reach financial
services to the poor, thanks mainly to the initiatives of the Non-Governmental Organisations
(NGOs) and banks in various parts of the country.
Despite having a wide network of rural bank branches in the country and
implementation of many credit linked poverty alleviation programmes, a large number of the
very poor continue to remain outside the fold of the formal banking system. Various studies
suggested that the existing policies, systems and procedures and the savings and loan products
often did not meet the needs of the hardcore and assetless poor. Experiences of many anti-
poverty and other welfare programmes of the state as well as of international organisations
have also shown that the key to success lies in the evolution and participation of community
based organizations at the grassroots level.
Micro-finance and Poverty Alleviation:
Most poor people manage to mobilize resources to develop their enterprises and their
dwellings slowly over time. Financial services could enable the poor to leverage their initiative,
accelerating the process of building incomes, assets and economic security. However,
conventional finance institutions seldom lend down-market to serve the needs of low-income
families and women-headed households. They are very often denied access to credit for any
purpose, making the discussion of the level of interest rate and other terms of finance
irrelevant. Therefore the fundamental problem is not so much of unaffordable terms of loan as
the lack of access to credit itself.
The lack of access to credit for the poor is attributable to practical difficulties arising
from the discrepancy between the mode of operation followed by financial institutions and the
economic characteristics and financing needs of low-income households. For example,
commercial lending institutions require that borrowers have a stable source of income out of
which principal and interest can be paid back according to the agreed terms. However, the
income of many self employed households is not stable, regardless of its size. A large number
[16]
of small loans are needed to serve the poor, but lenders prefer dealing with large loans in small
numbers to minimize administration costs. They also look for collateral with a clear title -
which many low-income households do not have. In addition bankers tend to consider low
income households a bad risk imposing exceedingly high information monitoring costs on
operation.
In other words, although microfinance offers a promising institutional structure to

provide access to credit to the poor, the scale problem needs to be resolved so that it can reach
the vast majority of potential customers who demand access to credit at market rates. To be
successful, financial intermediaries that provide services and generate domestic resources must
have the capacity to meet high performance standards. They must achieve excellent
repayments and provide access to clients. And they must build toward operating and financial
self-sufficiency and expanding client reach. In order to do so, microfinance institutions need to
find ways to cut down on their administrative costs and also to broaden their resource base.
Cost reductions can be achieved through simplified and decentralized loan application,
approval and collection processes, for instance, through group loans which give borrowers
responsibilities for much of the loan application process, allow the loan officers to handle
many more clients and hence reduce costs.
Savings facilities make large scale lending operations possible. On the other hand,
studies also show that the poor operating in the informal sector do save, although not in
financial assets, and hence value access to client-friendly savings service at least as much
access to credit. Savings mobilization also makes financial institutions accountable to local
shareholders. Therefore, adequate savings facilities both serve the demand for financial
services by the customers and fulfill an important requirement of financial sustainability to the
lenders. Microfinance institutions can either provide savings services directly through deposit
taking or make arrangements with other financial institutions to provide savings facilities to tap
small savings in a flexible manner.
Convenience of location, positive real rate of return, liquidity, and security of savings
are essential ingredients of successful savings mobilization. Once microfinance institutions are
engaged in deposit taking in order to mobilize household savings, they become financial
[17]
intermediaries. Consequently, prudential financial regulations become necessary to ensure the

solvency and financial soundness of the institution and to protect the depositors.
Governments should provide an enabling legal and regulatory framework which

encourages the development of a range of institutions and allows them to operate as recognized
financial intermediaries subject to simple supervisory and reporting requirements.
One way of expanding the successful operation of microfinance institutions in the

informal sector is through strengthened linkages with their formal sector counterparts. A
mutually beneficial partnership should be based on comparative strengths of each sectors.
Informal sector microfinance institutions have comparative advantage in terms of small
transaction costs achieved through adaptability and flexibility of operations. They are better
equipped to deal with credit assessment of the urban poor and hence to absorb the transaction
costs associated with loan processing. On the other hand, formal sector institutions have access
to broader resource-base and high leverage through deposit mobilization.
Therefore, formal sector finance institutions could form a joint venture with informal
sector institutions in which the former provide funds in the form of equity and the later extends
savings and loan facilities to the urban poor. Another form of partnership can involve the
formal sector institutions refinancing loans made by the informal sector lenders. Under these
settings, the informal sector institutions are able to tap additional resources as well as having
an incentive to exercise greater financial discipline in their management. Microfinance
institutions could also serve as intermediaries between borrowers and the formal financial
sector and on-lend funds backed by a public sector guarantee.
Weaknesses of Existing Microfinance Models
One of the most successful models discussed around the world is the Grameen type.
The bank has successfully served the rural poor in Bangladesh with no physical collateral
relying on group responsibility to replace the collateral requirements. The brief idea about
Grameen is given in the next part of this report. This model, however, has some weaknesses. It
involves too much of external subsidy which is not replicable Grameen bank has not oriented
itself towards mobilising peoples' resources. The repayment system of 50 weekly equal
instalments is not practical because poor do not have a stable job and have to migrate to other
places for jobs. If the communities are agrarian during lean seasons it becomes impossible for
[18]
them to repay the loan. Pressure for high repayment drives members to money lenders. Credit
alone cannot alleviate poverty and the Grameen model is based only on credit. Micro-finance is
time taking process. Haste can lead to wrong selection of activities and beneficiaries.
6.0 Rural Market Contribution In Total Indian Economy

When you consider a rural market then the measure part of the rural business directly or
indirectly connected with agriculture. In this condition, whenever you study about rural market
you have to consider the impact of agriculture towards Indian Economy.
6.1 Profile of Rural people:-If we classify the rural people by their occupation, we find
cultivators as the predominant occupation group who account 72% of rural households.
Distribution of rural households by their profession or business activity
Occupation Percentage of Households
Cultivators 72
Agricultural labourers 15
Other non-cultivators 11
Artisans 2
All house holds 100
However this group of cultivators contain both prosperous and well as marginal cultivators
within itself. This is rural Indias picture where 20% of rural households (mostly cultivators)
control about 66% of assets in rural India. In this way rural population broadly divided into 6
categories:
1. Proprietors of land includes feudal tribute gatherers like zamindars, rich moneylenders
and traders who acquire large tracts of land and companies or persons who own large
populations.
2. Rich farmers who belong to dominant caste of the area.
3. Small peasants or marginal farmers owning uneconomic land holdings.
[19]
4. Tenant farmers operating on rented lands belonging to large land holders and working
on small uneconomic land holdings.
5. Agricultural labourers who work on lands of landlords and rich farmers.
6. Artisans and others, which include the unemployed also.
6.2 Statistical Profile Of The Rural Business in India
TABLE: VILLAGE & SMALL INDUSTRIES (Production)
Industry Unit # <-------------------- Production --------------->
1973-74 1979-80 1984-85 1985-86 1990-91 1995-96!
Traditional
Industries:
Khadi M.Sq.Mtres 56.00 82.00 103.98 108.58 1088.8 1052.63
Value
33.00 92.00 157.62 186.30 285.95 353.49
(Rs. crores)
Village Value 122.00 348.00 807.06 900.38 1994.06 356216
Industries (Rs. crores)
Handlooms Mill Meters 2100.00 2900.00 3600.00 3692.00 4888 7020
Value
840.00 1740.00 2880.00 2953.60 3633
(Rs. crores)
Lakh Kgs. of
Sericulture 29.00 48.00 76.70 78.97 12836 13909
raw
silk
(value
63.00 131.00 345.69 310.14 868
Rs.crores)
Handicrafts Value 1065.00 2050.00 3500.00 3800.00 11325 25200
[20]
(Rs. crores)
Lakh tonnes
Coir 1.50 1.85 1.49 1.83 2.11 2.63
of
fibre
Value
60.00 86.00 100.50 139.51 161.00
(Rs. crores)
Value
Sub-total (A) 21.83 4447.00 7790.87 8289.93 16272.95 25553.489
(Rs. crores)
Modern
Industries:
Small Scale Value

7200.00 21635.00 50520.00 61228.00 155340 219968
Powerlooms Mill Meters 2400.00 3450.00 4930.00 5886** 10988 17201
Value
1980.00 3250.00 6423.00 7668.51 12337
(Rs. crores)
Value
Sub-total (B) 9180.00 24885.00 56943.00 64768.51 167677 219968
(Rs. crores)
(Rs.
Total (VSI) 11353.00 29332.00 64733.87 73058.44 183949.95 245521.48
crores)
TABLE: VILLAGE & SMALL INDUSTRIES (Employment)
Industry Unit # <-------------- Employment (Lakh persons) -------->
1973-74 1979-80 1984-85 1985-86 1990-91 1995-96
Traditional
[21]
Industries:
Khadi M.Sq.Mtres 8.84 11.20 13.05 15.00 14.15
Value
N.A.
(Rs. crores)
Village Value 9.27 16.13 24.84 25.50 34.42
Handlooms Mill Meters 52.40 61.50 76.80 73.70 96.87 128.00
Value
(Rs. crores)
Lakh Kgs. of
Sericulture 12.00 16.00 20.43 53.60 52.00 59.50
raw
silk
(value
Rs.crores)
Handicrafts Value 15.00 20.30 27.40 28.00 43.84 65.50
(Rs. crores)
Coir Lakh tonnes of 5.00 5.59 5.89 8.00 5.46
fibre N.A.
Value
(Rs. crores)
Value
Sub-total (A) 102.21 130.72 168.41 203.80 246.74 253.00
(Rs. crores)
Modern Industries: 39.65 67.00 90.00 96.00 124.3 152.61
Small Scale Value

Powerlooms Mill Meters 10.00 11.00 32.19 35.32 55.00 N.A.
Value
(Rs. crores)
[22]
7.0 Changing Scenario Of Rural Credit

Indian rural credit structure is regarded all over the world as quite unique and
innovative. It required a careful feasibility study to understand rural structure. Evolved
over a period of last eight decades, it can perhaps claim the honour of being a very important
constituent of the most complex rural economy in the third world countries. In India there is
different caste, religion of people living together, the language of every state, caste is different
than each other. The land, weather, water availability is different in different area, which give
lots of problem in applying various policies. One of the distinguishing features has been its
ability to adapt itself, without much any stress, to the socio-economic dynamics of the rural
scenario. Over the years it has developed into a multi faceted structure to service almost the
entire cross-section of rural population spread throughout the length and breadth of our
country.
In rural areas the indigenous moneylenders continued to be the banker in need. Since these
money-lenders had virtual monopoly in supplying credit in rural areas, the poor were often
subjected to exploitation. With the overriding monopoly the money-lenders often resorted to
curious practices--- levying the exobirant rate of interest, demanding gift/contribution to the
temple funds out of the amount of credit, demanding advance interest, etc. Besides, often the
money-lenders resorted to unethical practices like taking thumb impression on a blank paper
for inserting some arbitrary amount, manipulation of account to inflate the balance due. The
poor villager could not escape the clutches of these indigenous bankers as they had to keep on
borrowing from them under distress since they were the only source of credit for all type of
requirements--- production and consumption. The conditions of the poor peasantry were
perpetually so pathetic that an adagethey are born in debt, they live in debt & die in debt
was the usual description of their plight.
To mitigate the sufferings of the poor farmers the infrastructure of co-operative credit was
brought into being in the matter of agricultural finance. The Co-operatives Societies Act of
1904 provided the formation of primary agricultural co-operatives credit societies. Later in
1912, the co-operative movement was extended to formation of non-agricultural co-operative
credit societies also.
The commercial banks on the other hand were participating in rural banking only as an alien
since they were programmed for meeting the financial requirements of trade and commerce. In
[23]
a view of the huge gap in rural credit from institutional sources and in a bid to meet the
growing needs of financial assistance to modernizing farming, the government adopted the
multi-agency approach. This was intended to increase the farm productivity and thus raise the
living standards of the poor farmers. The formation of State Bank Of India which was formed
my taking over the Imperial Bank of India by the Government was with a objective of
extension of banking facilities on a large scale more particularly in the rural and semi-urban
areas and for other diverse purposes. This was an important milestone in the banking of rural
India. Momentum was gained more prominently after the concept of Social control over
commercial banks was propagated in 1967. With the setting up of National Credit Council in
1968 to access the demand for bank credit for various sectors of economy and to determine
priorities for the grant of loans, etc. it came to be felt increasingly that banks should become
instruments of economic and social development.
This effect nationalization of 14 major Indian commercial banks in July 1969 can be described
as a major landmark in the history of Indian financial system and a big leap towards rural
banking. With emphasis on lending to priority sectoragriculture, rural artisans and
handicrafts, small scale industries, small business and retail trade and other weaker sections of
the society rural banking came to the fore. The step was initiated to utilize effectively the
professional skills and acumen developed by the banking system for achieving the basic
objective of balanced socio-economic development.
Both the Co-operative and Commercial banks made substantial development in providing
credit to agricultural and rural economy. The total share of co-operatives in total borrowing of
the rural household grew from 5,204 in July 1964 to 12,065 in Dec 1974. But still it was
noticed that two-thirds of the total credit was taken from non-institutional sources. The
demand for rural credit was on the increase owing to adoption of modern agriculture, which
increasingly required larger amounts of capital both short term & long term.
7.1 Structure of Rural Credit In India

In the village itself no form of credit organization will be suitable except the Co-operative
SocietyCo-operation has failed, but co-operation must succeed.
--All-India Rural Credit Survey
[24]
National Policy & Its Aim:
Agricultural credit is one of the most crucial inputs in all agricultural development
programmes. From olden days private money-lenders are main sources of credit towards
agricultural or rural products. After independence multi-agency approach consisting of co-
operatives, commercial banks and regional rural banks are adopted due to its cheaper and
adequate credit to farmers. The major policy in the sphere of agricultural credit has been its
progressive institutionalization for supplying agriculture and rural development programmes
with adequate and timely flow of credit to assist weaker sections and less developed regions.
The basic aim of this Policy are as follows:-
a. To ensure timely & sufficient flow of credit to the farming sector;
b. To avoid money-lender chain from rural scene.
c. To reduce regional imbalance through their credit facilities.
d. To provide larger credit support to areas covered by special programmes. e.g.
National Oilseeds Development Project.
Need of Credit for Farmers:-
Farmers need finance mainly for the following thingsto pay current expenses of
cultivation such as the purchase of seed, manures, etc.; the purchase of cattle, implements and
raw materials; acquire new land; or improve land by irrigation, drainage, wedding and
planting; pay up old debts to build and repair houses, to purchase food stuffs and other personal
necessaries; pay land revenue to the Government; meet expenses connected with marriage and
other social events in the family, but jewellery and conduct law suits. The credit need of
agriculturists can, therefore, be broadly divided into directly productive & indirectly
unproductive expenses. Unfortunately fact is that underdeveloped and old countries are in
need of both the types of credit.
[25]
8.0 Sources Of Rural Credit

There are mainly two sources available to the farmers Private agencies & institutional.
Private agencies means relatives, landlords, agricultural moneylenders, professional private
moneylenders, traders & commission agents, others. Where institutional agencies are A-
Commercial banks, B- The State Bank, C- Co-operative Societies & land mortgage banks D-
Agricultural finance Corporation.
Private agencies giving 93% of the total credit requirements in 1951-52 and
institutional sources including government giving for only 7% of the total credit needs. But in
1960-61, the share of private agencies came down to 81.3 which was as follows:- Relatives
8.8%, Landlords 0.6%, Agricultural moneylenders 36.0, Professional private moneylenders
13.2%, traders & commission agents 8.8%, other sources 13.9. that time institutionals sources
were 18.7 and the break up was government 2.6%, Co-operative 15.5%, Commercial banks
0.6%. As per the All India Debt and Investment Survey (1981), estimated that the share of
private agencies had further slumped to about 37% & share of institutional credit jumped to
63% break up was 30% of co-operative & 29% of commercial banks. Government & Reserve
Bank of India is supporting commercial bank & co-operatives to meet the growing demand for
agricultural credit.
9.0 Private Agencies Sources:

Money lenders: Though there are drawbacks, moneylenders are by far the most important
source of agricultural credit in India. That we have already seen before, It is therefore,
clear that the basic problem of the agricultural economy of India is the huge indebtedness
of farmers and their exploitation by private moneylenders. For that government of India
make provisions in act as follows A- Maintenance of accounts in prescribed forms, B-
Furnishing of the receipts and periodical statements, C- Fixing of maximum rates of
interest, D- Protection of the debtors from molestations and intimidations, E- Licensing of
moneylenders, and F- Penalties for infringement of the provisions. The basic objectives of
such legislative enactments can be stated as: I. To bring about an improvement in the terms
on which private credit was available to agriculturists and to place legal restrictions on the
unreasonable exactions of moneylenders, II. To enable civil courts to do greater justice as
[26]
between lenders and borrowers than was possible in the prevailing circumstances under the
ordinary Code of Civil Procedure.
Traders & commission agents: Traders & commission agents supply funds to farmers for
productive purposes much before the crops mature. They force the farmers to sell their
produce at low prices and they charge a heavy commission for themselves.
Landlords & others: Farmers, predominantly small farmers & tenants, depend upon
landlords and others to meet their financial requirements. This source of finance has all the
defects associated with moneylenders, traders and commission agents. Interests rates are
exorbitant. Often the small farmers are cheated and their lands are appropriated. What is
worse, this source of finance is becoming more importantfrom 3.3 percent in 1951-52 to
14.5 percent in 1961-62 but declined to 8.8 percent in 1981.
10.0 Institutional sources of credit:

These are the funds made available by co-operative societies, commercial banks, &
regional rural banks & state governments also. The need for institutional credit arises because
of the weakness or inadequacy of private agencies to supply credit to farmers. Private credit is
defective because:-
I. It is based on profit motive &, therefore, it is always exploitative.
II. It is very expensive and is not related to the productivity of land.
III. It does not flow into most desirable channels and to most needy persons.
IV. It is not available for making agricultural improvementsand much of the necessary
improvements are not undertaken as funds are not available for long periods at low
rates of interest
V. It is not properly integrated with the agriculturists other needs.
Problems in Institutional sources:
The government was of the view that multi-agency approach to rural credit was the real
solution to the emancipation of small farmers from the clutches of the money-lenders. But
within a short period, number of problems have surfaced such as:
[27]
a) There was no coordination between different agencies operating in the same area and,
as a result, there was multiple financing, over-financing in some areas and under-
financing in others.
b) Despite the adoption of lead bank scheme and district credit plans, the different
agencies often failed to formulate and develop meaningful agricultural credit
programmes in given blocks and districts.
c) Despite guidelines issued by RBI, different agencies adopted different procedures and
policies in the matter of providing loans and their recover. The result was unnecessary
competition among the different agencies.
d) There were practical problems in the recovery of loans when different agencies had
lent to the same person against the same securities. Ultimatlely, there were heavy
overdues.
The major problem faced by lending institutions, particularly co-operatives, is the most
unsatisfactory level of overdues. The ration of overdues to that of demand is around 40 to 42
percent in the case of co-operatives and 47 percent in the case of Regional rural banks.
Accordingly, health of rural credit institutions, both co-operative and commercial banks, is in a
very sad state in several parts of the country.
10.1 Co-operative credit societies

It is the cheapest and the best source of rural credit. The rate of interest is low. Since 1951, the
co-operative credit movement has started helping the farmers in a big manner. During 1989-90
there were about 88,000 primary agricultural credit societies. The stranglehold of the
moneylenders on the peasants is not met by the co-operatives. Besides, the small farmers find
it difficult to meet all their credit requirements from the co-operatives.
Primary Agricultural Credit Society:
The co-operative movement was started in India largely with a view to providing agriculturists
funds for agricultural operations at low rates of interest and protect them from the clutches of
moneylenders. The organization of the co-operative credit for short period may be briefly
outlined as follows:
[28]
A co-operative credit society, commonly known as the Primary Agricultural Credit Society
(PACS) may be started with ten or more persons, normaly belonging to a village. The value of
each share is generally nominal so as to enable even the poorest farmer to become a member.
The members have unlimited liability, that is each member is fully responsible for the entire
loss of the society in the event of failure. This will mean that all the members should know
each other intimately. The management of the society is under an elected body consisting of
President, Secretary & Treasurer. The management is honorary, the only paid member being
normally. Loans are given for short periods, normally for one year, for carrying out
agricultural operations, and the rate of interest is low. Profits are not distributed as dividend to
shareholders but are used for the welfare of the village. In the construction of a well, or
maintenance of a school, and so on. The usefulness of the primary credit societies has been
rising steadily. In 1950-51, it advanced loans worth Rs.23 crores; this rose to Rs. 200 crores in
1960-61, and to Rs. 4200 crores in 1988-89.
Financial Strength of PACs.: To make all primary agricultural societies viable and ensure
adequate and timely flow of co-operative credit to the rural areas the Reverse Bank of India, in
collaboration with State governments, had been taking a series of steps to strengthen weak co-
operative banks and to correct regional imbalances in co-operatives development. Steps were
taken to reorganize viable PACs and for amalgamation of non-viable societies with farmers
service societies or large sized multipurpose societies. These efforts are being intensified by
providing larger funds to weak societies to write off their losses, bad debts and overdues.
PACs and Weaker Sections: The major objective of the co-operative development
programmes is to ensure that the benefits of co-operative activities flow increasingly to weaker
sections including scheduled castes and scheduled tribes. The government seeks to achieve
this through expanding the membership of the weaker sections in the existing PACs and
ensuring larger flow of funds and services to them. In the tribal areas, large sized multipurpose
societies are being organized mainly for the benefit of the tribals.
Co-operative Central Banks: These are federations of primary credit societies in specified
areas normally extending to the whole district meance they are sometimes called as district co-
operative banks. These banks have a few private individuals as shareholders who provide both
finance of management. Their main task is to lend to village primary societies, but they were
[29]
expected to attract deposits from the general public. But the expectation has not been fulfilled
and many of the co-operative central banks act as intermediaries between the State Co-
operative Bank on the one hand and the village primary credit societies on the other.
State Co-operative Bank: This bank forms the apex of the co-operative credit structure in
each state. It finances and controls the working of the central co-operative banks in the State.
It serves as a link between the Reserve Bank of India from which it borrows and the co-
operative central banks and village primary societies. The State Co-operative Bank obtain its
working funds from its own share capital and reserves, deposits from the general public and
loans and advances from the Reserve Bank now NABARD has formulated a scheme for the
rehabilitation of weak central co-operative banks. NABARD is providing liberal assistance to
the State Governments for contributing to the share capital of the weak central co-operative
banks selected for the purpose. The State Co-operative bank is not only interested in helping
the co-operative credit movement but also in promoting other co-operative ventures and in
extending the principles of co-operation.
Problem of overdues to Co-operative credit
A highly distressing fact of co-operative credit is the heavy overdues of co-operative

credit institutions, now estimated between Rs.9,000 crores to Rs.10,000 crores. According to
the RBI study team on overdues lack of will and discipline among cultivators to repay loans
was the principal factor responsible for the prevalence of overdues of co-operatives.
Apart from these commonly factors normally responsible for a high level of overdues,
intervention of external forces such as loan waivers, concession in various forms towards
repayment of principal and interest has also affected the recovery performance of credit
institutions to a significant extent. The problem is further aggravated on the account of the
state governments in ability to meet the financial commitments to co-operative banks.
In recent years, the farmers are getting organized and one of their chief demands of the
farmer union is to cancel their debts to the co-operative societies and banks. States have
meekly surrended to such demands to write off the debts in a matter of extreme concern, as it
hampers the recovery of dues from the farmers. The problem of loan overdues is a matter of
serious concern, as it affects the recycling of funds and credit expansion on one hand and
[30]
economic viability of the lending institutions, specially the co-operatives and RRBs, on the
other.
10.2 Land development banks:

The need for long-term loan is being satisfied by land development banks (formerly the were
called land mortgage banks). The objective of such banks is to provide long-term credit to the
cultivators against the mortgage of their lands. The loans from the land development banks are
quite cheap and are spread over a long period of 15 to 20 years. It is, therefore, convenient to
borrow from these banks if previous debts have to be cancelled or if additional land is to be
purchased or if improvements have to be made. Though land development banks have been
making considerable progress in recent years in this country, they have not really contributed
much to the financial need of the farmers. Most farmer are not even aware about this bank &
70% of the land development banks are located in the three South Indian States of Tamil Nadu,
Andhra Pradesh & Karnataka. The loan sanction by this bank has been increase annually from
Rs. 3 crores to Rs. 770 crores between 1950-51 and 1989-90. major drawback of this bank is
they lend against the security of land, and big landlords have taken advantage of them and, by
and large, small peasants have not benefited from them.
The Structure of LDBs:- The long term credit structure consists of the central land
development banks (generally one for each State) and primary land development banks. In
some States, there are no primary land developments banks but in their place, there are
branches of central land development banks.
Problems of LDBs:- Land development banking is yet to take strong roots in India barring few
States. However, LDBs have contributed in large measure to agricultural development by
lending specially for minor irrigation. All their loans are for productive purposes benefiting
mostly the small farm holders. Though land development banking has made considerable
progress in recent years, it has not really contributed much to the improvement of the financial
position of the farmers. A large number of factors are responsible for the relative
ineffectiveness of LDBs.
[31]
Overdues Problems:- mounting overdues in most of the LDBs have crippled the structure
badly, in recent years. Overdues at the level of primary land development banks have been put
between 42 to 44 percent. Overdues have caused innumerable financial problems besides
limiting the capacity of LDBs to lend and operate as viable units. The financial discipline
imposed on the banks in the matter of eligibility to undertake fresh lending based on recovery
performance has been the main limiting factor quantitative growth of credit operations. To
some extent, the banks themselves are to be blamed for this predicament due to faulty loaning
policies, inadequate supervision, over-utilisation of loans, ineffective measures for recovery
etc. Which have contributed to the deterioration in recovering the loans.
10.3 Commercial Banks:

The commercial banks in India have long confined their operations to urban areas, receiving
deposits from the urban public and financing trade and industry in urban public and financing
trade and industry in urban areas. Commercial banks are extending financial support to
agriculture both directly and indirectly Direct finance is extended for agricultural operations
for short and medium period. Indirect finance to farmers is made through providing advances
for the distribution of fertilizers, other inputs, etc, and also through financing primary
agricultural credit societies. Financing of investment in agriculture is a major aspect of the
farm credit activities of banks Credit needs of service units providing services for warehousing,
processing, marketing, transporting, and repairing of tractors etc.
Direct Finance by Commercial Banks:- At the time of bank nationalization, it was clearly
conceded that the commercial banks did not have the necessary experience or the personnel to
deal with the farmers directly. While the co-operative had been specializing in rural credit
since the beginning of the century. Even then the nationalized banks were expected to go
vigorously in the support of the farmers in general and the small cultivators in particular. In
the initial stages, for obvious reasons the nationalized banks concentrated their attention on
large cultivators and other special category farmers such as those engaged in raising high-
yielding varieties of food-grains. At present short term crop loans accounted for nearly 40 to
45% of the total loans disbursed by the commercial banks to the farmers.
[32]
Term loans for varying periods for purchasing pump-sets, tractors and other agricultural
machinery, for construction of wells and tube-wells, for the development of fruit and garden
crops, or leveling and development of land, etc. are provided. These term loans accounted for
about 35 to 37% of the total loans disbursed by commercial banks. Finally, commercial banks
extend loans for such activities such as dairying, poultry farming, piggery, bee keeping,
fisheries and others these loansaccount for 15 to16%. Region wise, southern region
accounts for the bulk of credit disbursed by commercial banks viz. 52% of the total credit
extended.
Indirect Finance by Copmmercial Banks: Even though the scope for direct financing by
commercial banks would be limited for some years to come, there is a considerable scope for
indirect financing by commercial banks. For instance, commercial banks are financing co-
operative societies to enable them to expand their production credit to the farmers. More
especially they increasingly finance co-operatives engaged in marketing and processing of
agricultural produce or in the activities ancillary to agriculture such as dairy farming, poultry
farming, etc. In this connection, the Stated Bank of India and its subsidiaries are already
playing an active role in financing co-operative marketing and processing. Commercial banks
are providing indirect finance for the distribution of fertilizers and other inputs.
Commercial banks extend credit to manufacturing or distribution firms and agencies and co-
operatives engaged in the supply of pump-sets and other agricultural machinery on the hire-
purchase basis. They finance the operations of the Food Corporation of India, the state
governments and others in the procurement, storage and distribution of food grains.
Finally, commercial banks increasingly subscribe to the debentures of the central land
development banks and also extend advances to the latter. This enables land development
banks to expand their medium and long-term advances to farmers for the purpose of land
improvement and land development.
Commercial Banks & Small Farmers: It has been estimated that nearly 70 percent of farmers
owning less than 2 hectares of land are not getting bank credit; only large landowners have
been found creditworthy and suitable for banks advances. But such a situation cannot continue
for long. Under the direction of the Planning Commission, Small farmers Development
[33]
Agencies have been set up to identify small farmers and work out economically viable schemes
of agricultural development. Commercial banks have to group them into various categories for
credit support so as to enable them to become viable cultivators. For instance, in areas where
the subsoil water table is high, the small cultivator has to be helped by banks to convert his dry
holding into wet holding. With pump set loan, the cultivator can change the cropping pattern
into double or even multiple cropping activity. As regards small cultivators near urban areas
and with irrigation facilities, commercial banks can help them to go in for poultry farming and
maintaining one or two vegetable cultivation or combine it with small milch cattle.
Problems of Commercial Banks in Agricultural Credit:- The credit needs of the agricultural
sector in the next few years are estimated to rise to Rs.50,000 to Rs.60,000 crores. To meet the
needs is an enormous task, and responsibility will have to be borne by co-operatives and
commercial banks. As resources available to commercial banks in the agricultural sector will
naturally be limited, it is important that every commercial bank attempts to make optimum use
of its limited resources in this sector. In the field of financing of agriculture, the problem is not
merely quantitative but also of coverage vis--vis the organization and the personnel available
to the nationalized banks. The majority of the rural population consists of small farmers.
Further, there are 5,50,000 villages spread throughout the country. To reach all of them with
only about 47,000 banking offices is, no doubt, a stupendous task. Even with the completion
of branch extension programmes of the commercial banks now in hand or those which may be
undertaken during the next 5 to 10 years, commercial bank may not be in a position to cover
many of the villages. Moreover in recent years, the rural branches of commercial banks in
general and branches of RRB in particular, have been under severe financial strain on account
of higher transaction cost involved in handling of large number of small size loan accounts and
somewhat lower interest income as a result of concessional rate of interest on small size loans.
The lower proportion of current deposits in total deposits of rural branches has also placed
them at a disadvantage with regards to cost of resources. Finally, the presence of overdues,
particularly after the implementation of Agricultural and Rural Credit Debt Relief Schemes,
1990 has further adversely affected the viability of rural branches of commercial banks.
[34]
Under these conditions, if the development of agriculture is not to suffer for want of credit and
if there has to be some improvement in the lot of innumerable small farmers, new dimensions
will have to be given to schemes of financing agriculture.
10.4 Regional Rural Banks:

These banks were first set up in 1975 specifically to give direct loans and advances to small
and marginal farmers, agricultural labourers, rural artisans and other of small means. The
loans are given for productive purposes. There were 196 RRBs which have been lending
around Rs. 3600 crores annually by way of loans to rural people. Over 90 percent of the loans
of RPBs are given to the weaker sections in rural areas. The regional banks, though basically
scheduled commercial banks, differ from the latter in certain respects:
The area of regional rural banks is limited to a specified region comprising one or more
districts of a State.
The regional rural banks grant direct loans and advances only to small and marginal farmers,
rural artisans and agricultural labourers and other of small means for productive purposes.
The lending rates of the regional rural banks should not be higer than the prevailing lending
rates of co-operatives societies in any particular State. The sponsoring banks and the Reserve
Bank of India provide many subsidies and concessions to RRBs to enable the latter to function
effectively
Concessions to RRBs: From the beginning, the sponsor banks have continued to provide
managerial and financial assistance to RRBs and also other concessions such as lower rate of
interest on the latters borrowing from sponsor banks. Further, the cost of staff deputed to
RRBs and training expenses of RRB staff are borne by the sponsor banks. The Reserve Bank
of India has been granting many concessions to RRBs.
Progress of RRBs: There are now 196 regional rural banks in 23 States with 14,500 branches.
As at the end of September 1990 the regional rural banks had advanced Rs.3,560 crores by way
of short-term crop loans, term loans for agricultural activities, for rural artisans, village and
cottage industries, retail trade and self employed, consumption loans etc. Nearly 90 percent of
[35]
the loans of RRBs, were provided to the weaker sections. State wise Uttar Pradesh found large
number of offices.
Objectives of RRBs:
RRBs had followed instructions given by RBI and Government of India regarding loan
policies, procedures, etc.
The basic aim of setting up RRBs viz, developing the rural economy by providing credit for the
development of agriculture, trade, commerce industry and other productive activities in rural
areas, was being fulfilled and
RRBs had successfully maintained their image as a small mans bank by confining their credit
facilities to the target groups viz, small marginal farmers, agricultural labourers, artisans and
small enterprises for productive activities.
The recovery position on the whole was not satisfactory.
Problems in functioning of RRBs:
a. On account of the many restrictions place on the business they can undertake, RRBs
have lowearning capacity.
b. The wage and salary scales of RRBs have been rising and, in fact, with the recent
award of a tribunal, their scales would approximate those of commercial banks; with
the increase in salary scales, an important rationale for the setting up of RRBs has
ceased to exist.
c. The sponsoring banks are also running their own rural branches in the very area of
operations of the RRBs; this has given rise to certain anamolies and to avoidable
expenditure on controls and administration.
10.5 Reserve Bank of India:

RBI had shown keen interest in agricultural credit and maintained a separate department for
this purpose. RBI extended short-term seasonal credit as well as medium-term and long-term
[36]
credit to agriculture through State level co-operative banks and land developments banks. RBI
had also set up the Agricultural Refinance Development Corporation (ARDC) to provide
refinance support to the banks to promote programmes of agricultural development,
particularly those requiring term credit. With the widening of the role of bank credit from
agricultural development to rural development the Government propo9sed to have a more
broad-based organization at the apex level to extend support and give guidance to credit
institutions in matter relating to the formulation and implementation of rural development
programmes. A National Bank for Agriculture and Rural Development (NABARD) or
National Bank was, therefore, set up to take over the agricultural credit functions of RBI on the
on hand and the refinance functions of ARDC on the other.
10.6 N A B A R D: an Overview-
NABARD is an apex institution accredited with all matters concerning policy,
planning and operations in the field of credit for agriculture and other economic
activities in rural areas.
NABARD operates throughout the country through its Head Office at Mumbai, 25
Regional Offices and on Sub-Office, located in the capitals of all the states/union
territories. It also has 4 training establishments.
It is an apex refinancing agency for the institutions providing investment and

production credit for promoting the various developmental activities in rural areas.
It takes measures towards institution building for improving absorptive capacity of

the credit delivery system, including monitoring, formulation of rehabilitation
schemes, restructuring of credit institution, training of personnel, etc.
It co-ordinates the rural financing activities of all the institutions engaged in

developmental work at the field level and maintains liaison with Government of
India, State Governments, Reserve Bank of India and other national level institutions
concerned with policy formulation.
It prepares, on annual basis, rural credit plans for all districts in the country; these
plans form the base for annual credit plans of all rural financial institutions
o It undertakes monitoring and evaluation of projects refinanced by it.
[37]
o It promotes research in the fields of rural banking, agriculture and rural

development.
11.0 Schemes & Facilities from the various banks
11.1 NABARD:-
RURAL NON-FARM SECTOR FINANCE SCHEME
Rural Non Farm Sector (RNFS) holds the key to faster economic
development of the country. It has potential and promise for
generating employment and increased income in the rural areas.
Hence, NABARD has identified financing, development and
promotion of RNFS as one of its thrust areas.
Schemes from NABARD for non-farming sector:
1. COMPOSITE LOAN SCHEME (CLS) - under ARF
Borrowers: Rural artisans, handicraftsmen, small entrepreneurs, groups of individuals,

partnership firms, co-operative societies, NGOs, etc.
Refinance ceiling -Maximum of Rs. 10 lakh per borrower.
Repayment period -3 to 10 years with suitable need based moratorium not exceeding 18
months.
Eligible activities -All manufacturing, processing, and approved service activities.
2. INTEGRATED LOAN SCHEME (ILS) - under ARF
Borrowers: Individuals, artisans, groups of individuals, associations (formal and informal),

proprietary/ partnership firms/ co-operative societies, registered institutions/ trusts, voluntary
agencies, private and public limited companies, etc.
Refinance Repayment period 3 to 10 years with suitable need based moratorium not
exceeding 18 months.
[38]
Eligible activities: Manufacturing, processing and approved service activities in the cottage,
village and tiny industry sector and modernization/ renovation/ expansion/ diversification of
existing units.
3. Small Road and water Transport Operators SCHEME (SRWTO) - Under ARF
Borrowers: Individuals, groups of individuals, including partnership/ proprietary firms and co-
operative enterprises. The borrowers should be from the rural areas and should utilise the
vehicle mainly for transportation of Rural Farm and Non-Farm Products and inputs and
passengers to/ from marketing centres. The borrower or his employee should possess a valid
driving licence and the vehicle should be duly registered with the Regional Transport Authority
as public transport vehicle.
Refinance ceiling: Maximum of Rs.15 lakh per borrower
Repayment period: 5 years with moratorium of 6 months.
Eligible vehicles: Transport vehicles including Light Motor vehicles, Jeeps, Autorickshaws,
Water transport units (boats, launches etc.)
4. Schemes under pre - sanction procedure
(i) Term Loan to SSI units (through CBs & Scheduled PCBs)
Borrowers: Individuals, Proprietary / Partnership concerns, Private/ Public Limited

Companies, Promotional/ Developmental Organisations, State Level Federations/
Corporations, Joint Sector Undertakings.
(ii) Term Loan to Industrial Co-operatives (through SCBs)
Borrowers : Industrial Co-operative Societies identified as viable/ potentially viable by the

State Government.
iii) Project Finance for Agro-Industries (through CBs, Scheduled PCBs and SCBs)
Borrowers
1. State level corporations such as agro-industries corporations, forest/ tribal development

corporations, KVIC/ KVIB, state level cooperative societies/ federations, co-operative
[39]
marketing/ processing and industrial societies, joint sector undertakings, registered

societies in KVIC/ KVIB fold.
2. Public/ private limited companies, partnership firms and proprietary concerns.
Repayment period: 3 to 10 years with moratorium of 12 months.
FARM SECTOR FINANCE SCHEME:
A) Refinance Assistance for financing farm mechanization
i) Tractors:
(a) The quantum of refinance in respect of financing for acquisition of second tractor has been
enhanced from existing level of 40% to 90% ( 95% in case of SCARDBs) of the loan amount
as in the case of first tractor.
(b) Though the minimum land holding required for financing tractors is 8 acre perennially
irrigated land, necessary discretion has been given to banks to evolve their own area specific
norms, if need be, and report such norms evolved by them to the concerned RO of NABARD.
(c) Refinance facility for financing purchase of second hand tractors has been extended to
Gujarat in addition to Punjab, Haryana and Rajasthan.
ii) Power Tillers:
(a) Though the minimum land holding required for financing power tillers is 6 acres of perennially
irrigated land, necessary discretion has been given to banks to evolve their own area specific
norms, if need be, and report such norms evolved by them to the concerned RO of NABARD.
(b) Banks have also been advised to give focused attention on financing power tillers by preparing
a three year banking plan for a compact area for the benefit of the small farmers.
B) Swarnajayanti Gram Swarozgar Yojana (SGSY):
SGSY, formed by restructuring ongoing self employment programmes, viz. IRDP, TRYSEM,
DWCRA, etc., is under implementation from 01 April 1999. The programme envisages
formation of SGSY Groups and their linkage with the banks. Individuals as also SGSY group
members, below poverty line are assisted under the programme.
[40]
C) Scheme for financing farmers for purchase of land for Agricultural purposes:
In response to the Hon'ble Union Finance Minister's emphasis on the need to step up priority
sector lending and to examine financing farmers for purchase of land for agricultural purposes,
the Working Group constituted by Indian Banks Association formulated a above scheme in
consultation with the Government of India, RBI and NABARD.
The objective of the Scheme is to finance the farmers to purchase, develop and cultivate
agricultural as well as fallow and waste lands as also consider financing purchase of land for
establishing or diversifying into other allied activities.
Eligibility (i) Small and marginal farmers i.e.. those who would own maximum of 5 acres of
non- irrigated land or 2.5 acres of irrigated land including purchase of land under the scheme
and (ii) Share croppers / Tenant farmers are eligible.
D) Refinance Scheme for financing Farmers Service Center (FSC)
NABARD has decided to extend 100% refinance facility to banks for financing Farmers
Service Centres (FSC) set up in collaboration with Mahindra Shubhlabh Services Ltd (MSSL)
for providing various extension services to farmers including supply of agri-inputs. FSC is
intended to benefit farmers by way of higher yields and productivity through private sector
participation in technology transfer and extension services.
11.2 Scheme for Rural Finance

SBI Caters to the needs of agriculturists and landless agricultural labourers through a
network of 6600 rural and semi-urban branches. There are 972 specialized branches which
have been set up in different parts of the country exclusively for the development of agriculture
through credit deployment. These branches include 427 Agricultural Development Branches
(ADBs) and 547 branches with Agricultural Banking Divisions (ADBs) and 2 Agricultural
Business Branches at Chennai and Hyderabad catering to the needs of hitech commercial
agricultural projects.
[41]
The Bank has achieved tremendous growth in agricultural credit. As on March 2001 ,it has
covered 48 lakh farmers with loan outstanding of Rs. 14962 crores , accounting for 28% of
total agricultural advances of Public Sector Banks (PSBs)
Crop Loan
SBI offers financial assistance to meet cultivation expenses for various crops as short Term
Loan. With a repayment period not exceeding 18 months, the Crop Loan is extended in the
form of direct finance to cultivators.
Eligibility-Agriculturists, Tenant farmers and Share Croppers who actually cultivate the lands
are eligible for these loans. All categories of farmers - Small/Marginal (SF/MF) and others are
included.
Produce marketing loan scheme
The Bank extends financial assistance to help farmers store produce on their own to avoid
distress sale. The repayment period of the produce marketing loan (PML) does not exceed 6
months. Further, this facilitates immediate renewal of crop loans for next crop.
Eligiblity-All categories of farmers - Small/Marginal (SF/MF) and others - are eligible.
The Bank verifies the following aspects before granting the loan:
1)Service Area Approach.
2) Stocks at the borrowers' residence/godown.
3) Stock statement for valuation.
Loan Amount Security to be furnished
Upto Rs.25,000 DPN, DPN take delivery letter Hypothecation of stocks.
Above Rs.25,000 Hypothecation of stocks.Mortgage of properties.
Kisan credit card scheme
The SBI offers the Kisan Credit Card for farmers under short-term credit introduced as per
RBI/NABARD guidelines, providing a running account facility tofarmers to meet their
production credit need and contingency needs.
[42]
Eligibility-All agricultural clients having good track record for the last two years are eligible
for the Kisan Credit Card. Minimum credit limit: Rs.3000/- New borrowers requiring crop
loans can also avail this product.
Credit limit is based on operational land holding, cropping pattern and scale of finance.
Withdrawals can be made using easy and convenient withdrawal slips. The Kisan Credit Card
is valid for 3 years, subject to annual review.
Agriculture term loans
SBI gives agricultural term loans in the form of direct finance to cultivators to create assets
facilitating crop production/income generation. Repayments span not less than 3 years and not
exceeding 15 years. Activities broadly covered are land development, minor irrigation, farm
mechanization, plantation and horticulture, dairying, poultry, sericulture, dry land, waste land
development schemes, etc.
Eligibility-All categories of farmers-small/medium-and agricultural labourers are eligible for

agricultural term loans, provided they have necessary experience in the activity and the
required land area.
Land Development Schemes
The SBI gives credit solutions for land development programmes in the form of direct finance
to cultivators aimed at better productivity. Loans under this head cover various activities like
land clearance (removal bushes, trees, etc.), land leveling and shaping, contour/graded
bunding, bench terracing for hilly areas, contour stone walls, staggered contour trenches,
disposal drains, reclamation of saline/alkaline soils and fencing.
Eligibility:Loans cover various activities like digging of new wells (open/bore wells),
deepening of existing wells (traditional/inwell bore), energisation of wells (oil engine/electrical
pump set), laying of pipe lines, installing drip/sprinkler irrigation system and lift irrigation
system.
[43]
Minor Irrigation Schemes
SBI provides credit for creating new source of irrigation by exploiting underground water,
energisation of wells, conveyance of water, judicious use of available water, etc.
Loans cover various activities like digging of new wells (open/bore wells), deepening of
existing wells (traditional/inwell bore), energisation of wells (oil engine/electrical pump set),
laying of pipe lines, installing drip/sprinkler irrigation system and lift irrigation system.
Farm Mechanisation Schemes
SBI provides credit for purchase of farm equipment and machinery for agricultural operations.
This mode of finance covers activities ranging from: Purchase of tractors, trailers, cultivators,
cage wheels, power tillers, combine harvesters, power sprayers, dusters, etc.
Eligibility- is ascertained on the basis of minimum area requirements: Tractors - 8 acres of

irrigated area Power tiller - 5 -6 acres Combine harvester - 20 acres
Financing of Combine Harvesters:
o A farmer should own minimum 8 acres of irrigated land.
o Non-farmer entrepreneurs capable of utilizing combine harvester for custom hiring

work are also eligible.
o Combine harvester should be utilised for a minimum of 1000 hours of productive work
in a year.
o Unit cost will include cost of combine harvester and accessories, if any.
Kisan Gold Card Scheme:
Eligibility-Farmers with excellent repayment record for at least past 5 years. New farmers are
not eligible for the product.
Purpose-Investment credit for which term loans are ordinarily sanctioned. The scheme also
includes major family expenditures like marriages and education of children.
[44]
Land Purchase Scheme:
Eligibility-Small/marginal farmers, tenants, share-croppers owning less than 5 acres of

unirrigated / 2.5 acres irrigated land in their own name and landless agricultural labourers
are eligible to avail loan under the scheme, provided they are our existing borrowers with
record of prompt repayment of loans. Own land before and after purchase should not
exceed 5 acres irrigated / 2.5 acres irrigated.
Security-Land to be purchased with Bank finance will be mortgaged as security. No

other security will be insisted upon.
Repayment-Entire loan will be repayable in 10 years in half-yearly instalments.

Adequate gestation period will be allowed for development of land for cultivation.
Self Help Groups (SHGs)
SHGs are self managed homogeneous groups of economically backward people that promote
savings among themselves and pool the savings. These pooled resources are supplemented by
external resources i.e. bank credit when these groups gain experience. The Self Help Groups
Linkage Programme of SBI is under implementation since 1992. At the end of March 2001, the
Bank has financed 25,000 self-help groups with aggregate credit limit of Rs 46 crore.
11.3 Various Finance Scheme Offered From Government:

Maharashtra Rural Credit Project (MRCP) - India - Out line of the project features and
Impact
General: Access to credit has long been considered a major poverty alleviation strategy in
India. A variety of credit-linked programmes supplemented by subsidies have been
implemented. The Integrated Rural Development Programme (IRDP) operating since 1978-79
has been a major national rural poverty alleviation programme with a large credit component.
Under this programme, nearly 53 million families below poverty line were assisted with bank
credit of Rs.31 billion and subsidy of Rs. 10.5 billion upto 31st March 1998, but its impact had
not matched the resources spent. This was due to reasons like provision of supply rather than
[45]
demand-led credit, loans not tailored to meet needs of individual enterprises, lack of aftercare
support, weak linkages lack of supervision over loan utilisation etc. Further, there was no
effective involvement of the people at any stage of implementation of the programme. As a
result, the incidence of high overdues and high transaction cost for the banks in financing the
rural poor became a matter of concern for the policy-makers.
Maharashtra Rural Credit Project (MRCP)
Against this backdrop the MRCP supported by IFAD was evolved as an innovative approach to
poverty reduction with peoples participation. The strategy for implementation of this project
has been devised in such a manner that the rural poor assume centre-stage and their
participation ensured at all stages of the project viz. planning, implementation and monitoring.
The experience gained shows that once the peoples participation is invoked at the planning
stage itself a strong sense of ownership of the project develops among the people which
stimulates them to actively involve in the subsequent phases of the project.
The MRCP being implemented with an outlay of US$ 48.35 million is financed by an IFAD
loan of US$ 29.2 million supplemented by a contribution of US$ 14.97 million from
Government of India/Government of Maharashtra and US$ 1.65 million from participating
banks. The Project which is implemented by a number of banking institutions, Government
agencies and Non Governmental Organisation (NGOs) since 1994-95 was designed with the
principal goal .
Credit-Cum-Subsidy Scheme for Rural Housing.
Introduction:- The Credit-Cum-Subsidy Scheme for Rural Housing has been conceived for
rural households having annual income upto Rs.32,000/-.
Objective- To enable/facilitate construction of houses for all rural households who have some
repayment capacity.
Target Group- The target group under the scheme will be the rural households having an
annual income of Rs. 32000/- only. However preference will be given to rural households who
are below poverty line.
[46]
Salient Features:-
Subsidy upto Rs.10,000/- per eligible household in plain areas and Rs.11,000/- in
hilly/difficult areas.
Loan upto Rs."2"0,000/- per household.
Sanitary latrine and smokeless chulha are integral part of the house.
Achievement
The scheme has been launched with effect from 1 April, 1999 and is in the process of
implementation.
Funding Pattern
Funds are shared by the Centre and State in the ratio of 75:25.
Implementing Agency
The Implementing Agency for the Credit Cum Subsidy Scheme for Rural Housing may be the
State Housing Board, State Housing Corporation, specified Scheduled Commercial Bank,
Housing Finance Institution or the DRDA/ZP.
Council for Advancement of Peoples Action & Rural Technology (CAPART)
Recognising the need for an organisation that would coordinate and catalyse the
development work of voluntary agencies in the country, particularly to ensure smooth flow of
benefits to the underprivileged and socio-economically weaker sections of society,
Government of India, in September, 1986 set up the Council for Advancement of Peoples
Action and Rural Technology (CAPART), a registered society under the aegis of the
Department of Rural Development, by merging two autonomous bodies, namely, Peoples
Action for Development of India (PADI) and Council for Advancement of Rural Technology
(CAPART).
The main objectives of the CAPART are :-
To encourage, promote and assist voluntary action for the implementation of projects
intending enhancement of rural prosperity.
[47]
To Strengthen and promote voluntary efforts in rural development with focus on

injecting new technological inputs;
To act as a catalyst for the development of technology appropriate for rural areas.
To promote, plan, undertake, develop, maintain and support projects/schemes aimed at

all-round development, creation of employment opportunities, promotion of self-
reliance, generation of awareness, organisation and improvement in the quality of life
of the people in rural areas through voluntary action.
[48]
12.0 DATA ANALYSIS AND INTERPRETATION:
QUESTIONNAIRES:
1. From which source do you get information about Rural Finance?

Newspaper/ Magazine
Internet
Social Media
Others
5% Newspaper/
15% Magazines
Internet
30% 50%
Social Media
Others
INTERPRETATION:
From the above pie diagram it was found that 50% of the youth's got information about the
Rural Finance from the Internet, while 30% source of information was from Social Media
which can be facebook, Twitter etc. and followed by the 15% from other sources and the least
percent was found in Newspaper/Magazines that is 5%.
[49]
2. In which field does Rural Finance mainly deals in India?

Small Scale Industries
Agriculture
Cottage Industry
Others
5% 5% Small Scale
Industries
40% Agriculture
50% Cottage Industry
Others
INTERPRETATION:
From the above diagram it was found that 50% of Rural Finance in India deals in the field of
Agriculture. Followed by 40% in Small Scale Industry and least in Cottage Industry with 5%
and others category may include Watershed Development, Tribal Development etc. with 5%.
[50]
3. What is the primary purpose of Rural Financial services ?

To provide loan at lower interest rate
To help Self Help Group
To increase the Standard Of Living
To provide Finance to Small and Medium Enterprise
90.00 83.00
80.00
70.00
60.00 57.00
50.00 47.00
39.00
40.00
30.00
20.00
10.00
0.00
To Provide To Increase To help Self Help To provide
Loans at Lower Standadrd Of Group Finance to
Intrest Rate Living Small and
Medim
Enterprise
INTERPRETATION:
This is an multiple choice question and it was surveyed among 100 youth and it was found that
83 of the youth believe that the primary purpose of Rural Finance is To Increase Standard Of
Living. Followed by 57 youth to provide Loans at Lower Rate and 47 youth To Help Self Help
Group and last with 39 youth To Provide Finance to Small and Medium Enterprise.
[51]
4. Do you feel Rural Finance service needs growth ?

Yes
No
7%
Yes
No
93%
INTERPRETATION:
When this question was surveyed it was found that 93% of the youth feel that the services
provided by the Rural Finance need growth and the rest 7% feel that there is no need to bring
in any changes.
[52]
5. According to you Rural Financial services are reaching to the needy ?

Strongly Agree
Agree
Strongly Disagree
Disagree
6%
9%
Strongly Agree
27%
Agree
58% Strongly Disagree
Disagree
INTERPRETATION:
From the above pie diagram it was found that 58% youth Agree that Rural Financial services
are reaching to the needy, while only 6% youth Strongly Agree. The 9% youth disagree and the
27% youth Strongly Disagree with the financial services reaching to the needy.
[53]
6. What are the different government initiatives you know for promoting
Rural Finance ?
Pradhan Mantri Ujjwala Yojana
Pradhan Mantri Kaushal Vikas Yojana
Rajiv Gandhi Grameen Vidyutikaran Yojana
Deen Dayal Upadhyaya Gram Jyoti Yojana
Indira Awaas Yojana
80.00
72.00
70.00
60.00 58.00
50.00 46.00
40.00
40.00 35.00
30.00
20.00
10.00
0.00
Pradhan Mantri Pradhan Mantri Rajiv Ghandi Deen Dyal Indira Awaas
Ujjwala Yojana Kaushal Vikas Grameen UpadhyayaGram Yojana
Yojana Vidyutikaran Jyoti Jojana
Yojana
INTERPRETATION:
This is an multiple choice question when surveyed among the 100 youths it was found that 72
of the youth know about the Pradhan Mantri Kaushal Vikas Yojana, 58 youth know about
Pradhan Mantri Ujjwala Yojana, 46 youth know about Rajiv Gandhi Grameen Vidyutikaran
Yojana, 40 youth know about Indira Awaas Yojana and 35 youth know about Deen Dayal
Upadhyaya Gram Jyoti Yojana
[54]
7. Have these Schemes/Services brought changes in Rural areas ?

Yes
No
Maybe
23%
Yes
5%
No
72%
Maybe
INTERPRETATION:
From the above diagram it was found that 72% of youth think that the schemes/services May
have brought changes in Rural areas. 23% says Yes and the rest 5% says No.
[55]
8. Why is Rural Finance so important for our nation?

To Eradicate Poverty
To Increase the GDP
To Eradicate Unemployment
To eradicate
Poverty
42% 38%
To increase GDP
20%
To eradicate
Unemployment
INTERPRETATION:
From the above diagram 42% of youth think that Rural Finance is important for our nation to
Eradicate Unemployment. 38% feels is to Eradicate Poverty and the rest 20% feels is to
Increase GDP.
[56]
9. Are you looking for a Rural Finance as a career option ?

Yes
No
15%
Yes
No
85%
INTERPRETATION:
From the above pie diagram it is found that 85% of youth will like to take Rural Finance as
their career option and the rest 15% of youth would not like to take Rural Finance as their
career option.
[57]
10. What steps should youth take for the promotion of the Rural finance?
This was an open ended question asked to the youth and some important responses were
collected they are as follows:
Conduct Free Seminars for people in Rural Areas.

Inform people from different Yojana.
Conducting Campaigns.
Stand up for the population that dosent have voice. Educate them and support them.
Create Start ups serving Rural Finance needs.
Use of Social Media like Twitter, Facebook etc.
Everyday articles in Newspaper/ Magazines about problems in Rural Areas and ways to
fight those problems.
[58]
13.0 Conclusion and Recommendation
CONCLUSION
Agriculture and its associated activities are found constituting the economic base and
the main source of livelihood and employment for the people in the state. However,
unprecedented growth of population on one hand and decreasing rate of available agriculture
land along with degradation of supporting natural resources as required for sustaining crop
productivity on the other have been seriously forcing the problems of sustaining livelihood for
farming communities. It is becoming difficult to do the farming activity without external or
internal sources. In this context the significance of extending non-farm sector becomes only
alternative but it also required finance assistance for its development.
Means a lot of hard work & government awareness is required to flow the finance
assistance in Rural Economy. But various scheme which are provided by the various banks &
government should be specific in its eligibility criteria to stop the misuse of these funds by
large farmers and to ensure that the credit reaches the farmers who is in need of finance.
RECOMMENDATION
As per the above evaluation of the major problems and issues relating to the rural
financial system I can submit the following observations & recommendations:
Interest rates: Interest rates must be different for different categories. First it should be
concessional rate exclusively for small and marginal farmers at 1.5% to 11.5% &
Secondly, there should be a higher rate of interest applicable to the rest of the
agricultural borrowers upper limit for it is15.5%
Infrastructure Development: Tempo of agricultural lending has been low in the eastern
regional states like Bihar, Orissa and West Bengal & in the North Eastern States. So
[59]
Agricultural and Rural Infrastructure Development Corporation should be setup in

these area which will concentrate on building up necessary backward and forward
linkages and supporting services as well as formulate location specific schemes for
accelerating the transformation of agriculture and to arrange for funding of the
schemes.
Insurance scheme: Crop insurance scheme which was introduced in India from Kharif
1985 covering major cereal crops, oilseeds and pulses. The sum insured was limited to
Rs.10,000 per farmer irrespective of quantum of crop loan and the total sum insured
would be limited to 100 percent of the crop loan disbursed. Proper research should be
done by statutory crop insurance corporation.
Recovery of dues: Recovery is important for survival of the banks, it is important that a
common legal framework covering cooperatives and commercial banks for recovery of
dues for the country as a whole should be formulated. & The government should setup
State level tribunals for adjudication.
Rationalisation: In present scenario each village is allotted to a commercial bank

branch under the Service Area approach. As per the analysis each block should be
allotted to a bank which has the largest presence in the block through its branches.
Which will reduce the cost of supervision, improve quality of monitoring and be
beneficial to the customers.
[60]
14.0 BIBLIOGRAPHY
Sr.NO Name Author
1. Indian Economy Ruddar Datt.
K.P.M. Sundharam.
2. State Bank of India Journals
3. Agricultural Financing In S.N.Ghosal

India
4. Economic Survey, 1998-99. Monthly Review of the Indian

Economy, CMIE, March-April 1999
5. Rural Marketing Romeo S. Mascarenhas
WEBLIOGRAPHY
www.nabard.org
www.rbi.gov
www.sbi.co.in
[61]
15.0 ANNEXURE
1. From which source do you get information about Rural Finance?

o Newspaper/ Magazine
o Internet
o Social Media
o Others
2. In which field does Rural Finance mainly deals in India?

o Small Scale Industries
o Agriculture
o Cottage Industry
o Others
3. What is the primary purpose of Rural Financial services ?

o To provide loan at lower interest rate
o To help Self Help Group
o To increase the Standard Of Living
o To provide Finance to Small and Medium Enterprise
4. Do you feel Rural Finance service needs growth ?

o Yes
o No
5. According to you Rural Financial services are reaching to the needy ?

o Strongly Agree
o Agree
o Strongly Disagree
o Disagree
[62]
6. What are the different government initiatives you know for promoting
Rural Finance ?
o Pradhan Mantri Ujjwala Yojana
o Pradhan Mantri Kaushal Vikas Yojana
o Rajiv Gandhi Grameen Vidyutikaran Yojana
o Deen Dayal Upadhyaya Gram Jyoti Yojana
o Indira Awaas Yojana
7. Have these Schemes/Services brought changes in Rural areas ?

o Yes
o No
o Maybe
8. Why is Rural Finance so important for our nation?

o To Eradicate Poverty
o To Increase the GDP
o To Eradicate Unemployment
9. Are you looking for a Rural Finance as a career option ?

o Yes
o No
10. What steps should youth take for the promotion of the Rural finance?
__________________________________________________________________
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Rural Finance In Indian Economy

1. STATEMENT OF THE RESEARCH

2. FORMULATING THE RESEARCH PROBLEM

3.OBJECTIVES OF THE RESEARCH

There are two types of research

7. DETERMINING SAMPLE DESIGN

9. ANALYSIS OF THE DATA

10. PREPARING THE RESEARCH PROJECT

11. LIMITATIONS OF THE PROJECT

2.0 Meaning of an Underdeveloped Economy:

GNP Total GNP Per

World 20,736 5,206 3,980

2.1 Basic Characteristics Of The Indian Economy As An Underdeveloped

2. Occupational pattern:- Primary producing. One of the basic characteristics of an

4. Prevalence of chronic unemployment and underemployment:- In India labour is an

Gross Domestic Gross Domestic

1965 1989 1965 1989

3.0 History Of The Rural Economic Structure Of India

3.1 Indian Economy in the Pre-British period:-

3.2 Indian Population an Overview:-

4.0 Natural Resources In Process Of Economic Development In Rural India:

Land utilization pattern, 1986-87 (million hectares)

2. Total reporting area 305 100

3. Barren land not available for cultivation 41 13

4. Area under forests 67 22

5. Permanent pastures and grazing land 12 4

6. Culturable waste lands, etc. 19 6

8. Net area sown 140 46

9. Area sown more than once 37 12

10. Total cropped area (8+9) 177 58

4.1 Infrastructure In Process Of Economic Development In Rural

Types of Infrastructural facilitiesoften referred towards economic and

2. Power: Electric power, which is one form of energy, is an essential ingredient of

Modes of transport & communication facilities:

4. Communications: The communication system comprises posts and telegraphs,

5.0 Microfinance In An Indian Context:-

Micro-finance and Poverty Alleviation:

In other words, although microfinance offers a promising institutional structure to

intermediaries. Consequently, prudential financial regulations become necessary to ensure the

Governments should provide an enabling legal and regulatory framework which

One way of expanding the successful operation of microfinance institutions in the

Weaknesses of Existing Microfinance Models

6.0 Rural Market Contribution In Total Indian Economy

Distribution of rural households by their profession or business activity

Occupation Percentage of Households

All house holds 100

2. Rich farmers who belong to dominant caste of the area.

3. Small peasants or marginal farmers owning uneconomic land holdings.

5. Agricultural labourers who work on lands of landlords and rich farmers.

6. Artisans and others, which include the unemployed also.

6.2 Statistical Profile Of The Rural Business in India

TABLE: VILLAGE & SMALL INDUSTRIES (Production)

Industry Unit # <-------------------- Production --------------->

1973-74 1979-80 1984-85 1985-86 1990-91 1995-96!

Khadi M.Sq.Mtres 56.00 82.00 103.98 108.58 1088.8 1052.63

Village Value 122.00 348.00 807.06 900.38 1994.06 356216

Industries (Rs. crores)

Handlooms Mill Meters 2100.00 2900.00 3600.00 3692.00 4888 7020

Handicrafts Value 1065.00 2050.00 3500.00 3800.00 11325 25200

Small Scale Value

Powerlooms Mill Meters 2400.00 3450.00 4930.00 5886** 10988 17201

TABLE: VILLAGE & SMALL INDUSTRIES (Employment)

Industry Unit # <-------------- Employment (Lakh persons) -------->

1973-74 1979-80 1984-85 1985-86 1990-91 1995-96