March 2012/ Volume 2/Issue 3/Article No-2/394-411 ISSN: 2249-7196

INTERNATIONAL JOURNAL OF MANAGEMENT RESEARCH

AND REVIEW

EFFICACY OF NABARD IN INDIAN RURAL DEVELOPMENT

Samriti Jain*1, Divya Mathur1
1
Assistant Professor, Chandigarh Business School, Chandigarh Group of Colleges, Mohali,
Punjab
ABSTRACT
This paper reviews the contribution of National Bank for Agriculture and Rural
Development (NABARD) in rural development and roles it has been playing in propping
up this sector in terms of the policy, research and its implementation. We focused on
effectiveness of innovative schemes introduced by NABARD for the infrastructural
development for improving the quality of life in rural areas. Micro financing under
NABARD schemes has been analyzed using a case study. The approach taken was to trace
the growth of micro-finance at national level, looking explicitly at the role of NABARD in
the configuration of the sector and then the particular SHGs funded by the banks.
Secondary research includes the analysis of policy documents, overview of national level
institution of microfinance along with literature reviews.
Keywords: NABARD, Rural Development, Micro Finance, RIDF.
1. INTRODUCTION
The Indian economy is estimated to have registered a growth rate of 7.4 per cent in 2009-10
as against 6.7 per cent witnessed in 2008-09, while the global economy is expected to dip
from 3.0 per cent in 2008 to (-) 0.6 per cent in 2009. At the sectoral level, the growth rates
during 2009-10 over 2008-09 are expected to be 8.5 per cent for services, 9.3 per cent for
industry and 0.2 per cent for agriculture. National Bank for Agriculture and Rural
Development (NABARD) was established as an apex rural development bank in the year
1982, through an Act of Parliament, to provide refinance for agriculture, allied activities,
small scale industries, cottage and village industries, rural artisans and crafts in an
integrated manner. It provided promotional grants to VAs/ NGOs for various programmes
such as mother units, ancillarisation, and common facility centre’s, training including skill
up gradation and entrepreneurship development, marketing, etc., under exclusive women
and other schemes from its "Rural Promotion Corpus Fund". Rural Innovation Fund is
established to enable State Governments to contribute to the share capital of co-operative
credit institutions and for completion of rural infrastructure development projects such as
major and minor irrigation projects, soil conservation, rural roads and bridges, SHGs (Self
Help Groups) through PRls (Panchayati Raj Institutions) etc.
Through assistance of Swiss Agency for Development and Cooperation, Rural
Infrastructure Development Fund was created to complete ongoing rural infrastructure
projects together with rural drinking water schemes, soil conservation, rural market yards,

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rural health centres and primary schools, mini hydel plants, shishu shiksha kendras,
anganwadis, and system improvement in the power sector.
As a developing country, like India ought to be an ideal environment for micro-finance
programmes seeking to reach the poor and attain financial sustainability. Microfinance is
regarded as a central poverty alleviation strategy and a means of deriving economic growth
and employment of small, micro & medium enterprises (SMME). A complex set of best
practice models, and a network of active members and support of rural people in organized
form and the active support of banks and NABARD in India have emerged to support a
thriving industry.
1.1 Objectives of NABARD
NABARD was established in terms of the Preamble to the Act, "for providing credit for the
promotion of agriculture, small scale industries, cottage and village industries, handicrafts
and other rural crafts and other allied economic activities in rural areas with a view to
promoting IRDP and securing prosperity of rural areas and for matters connected therewith
in incidental thereto".
The main objectives of the NABARD as stated in the statement of objectives while placing
the bill before the Lok Sabha were categorized as under:
1. The National Bank will be an apex organization in respect of all matters relating to
policy, planning operational aspects in the field of credit for promotion of Agriculture,
Small Scale Industries, Cottage and Village Industries, Handicrafts and other rural crafts
and other allied economic activities in rural areas.
2. The Bank will serve as a refinancing institution for institutional credit such as long-term,
short-term for the promotion of activities in the rural areas.
3. The Bank will also provide direct lending to any institution as may approved by the
Central Government.
4. The Bank will have organic links with the Reserve Bank and maintain a close link with
in.
1.2 Major Activities
1. Preparing of Potential Linked Credit Plans for identification of exploitable potentials
under agriculture and other activities available for development through bank credit.
2. Refinancing banks for extending loans for investment and production purpose in rural
areas.
3. Providing loans to State Government/Non Government Organizations
(NGOs)/Panchayati Raj Institutions (PRIs) for developing rural infrastructure.
4. Supporting credit innovations of Non Government Organizations (NGOs) and other non-
formal agencies.
5. Extending formal banking services to the unreached rural poor by evolving a
supplementary credit delivery strategy in a cost effective manner by promoting Self Help
Groups (SHGs)

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March 2012/ Volume 2/Issue 3/Article No-2/394-411 ISSN: 2249-7196

6. Promoting participatory watershed development for enhancing productivity and

profitability of rain fed agriculture in a sustainable manner.
7. On-site inspection of cooperative banks and Regional Rural Banks (RRBs) and iff-site
surveillance over health of cooperatives and RRBs.
8. Help cooperative banks and Regional Rural Banks to prepare development action plans
for themselves Enter into MoU with state governments and cooperative banks specifying
their respective obligations to improve the affairs of the banks in a stipulated timeframe
9. Help Regional Rural Banks and the sponsor banks to enter into MoUs specifying their
respective obligations to improve the affairs of the Regional Rural Banks in a stipulated
timeframe
10. Monitor implementation of development action plans of banks and fulfillment of
obligations under MoUs.
11. Provide financial assistance to cooperatives and Regional Rural Banks for establishment
of technical, monitoring and evaluations cells.
12. Provide financial support for the training institutes of cooperative banks.
13. Provide training for senior and middle level executives of commercial banks, Regional
Rural Banks and cooperative banks.
14. Create awareness among the borrowers on ethics of repayment through Vikas Volunteer
Vahini and Farmer’s clubs
15. Provide financial assistance to cooperative banks for building improved management
information system, computerisation of operations and development of human resources
NABARD at a Glance
Table 1.1 Comparative Annual Assessment of NABARD
(Years 2008-2009 & 2009-10) (Rs. Crores)
Sources of Fund 2010 2009 Net Uses of Funds 2010 2009 Net

Accretion
Utilisation

Capital 2000 2000 0 Cash and Bank 9628 13975 -4347

Balances

Reserve & 10674 9535 1139 Collateralized 0 0 0

Surplus Borrowing and

Lending Obligation

NRC(LTO) Fund 14417 14016 401 Investment in

NRC 1566 1555 11 a)GOI Securities 1991 1555 436

(Stabilisation)
15 15 0
b) ADFC Equity
Fund

Deposits 505 482 23 1 1 0

c) AFC Equity

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Bonds and 20004 23704 -3700 d) SIDBI Equity 48 48 0

Debentures
e) AICI Ltd. 60 60 0

f) NCDEX Ltd. & 15 6 9

MCX Ltd.

g) Nabcons
5 5 0

h) Mutual
905 1005 -100
Fund/VCF

0 157 -157
i) Treasury Bills

744 143 601

j) commercial Paper

Borrowings from 147 354 -207

GoI
Loans and Advances

Borrowings 500 500 0

Production
fromCommercial
&Marketing Credit
Banks 24073 16896 7177
Conversion of

Foreign Currency 494 498 -4 Production Credit

Loan into MT Loans

Certificate of 379 1816 -1437 Liquidity Support

Deposits MT & LT Project 0 20 -20

Commercial 2680 181 2499 Loans

Paper LT Non Project

Collateralised 215 0 215 Loans

20 2591 -2571
Borrowing and Other Loans

Lending RIDF Loans

Obligation Co-finance
35742 33335 2407

199 252 -53

131 48 83

60255 45616 14639

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March 2012/ Volume 2/Issue 3/Article No-2/394-411 ISSN: 2249-7196

84 94 -10

Term Money 762 244 518 (Net of Provision)

Borrowings

RIDF Deposits 59869 47023 12846 Fixed Assets 235 247 -12

STCRC Fund 9622 4622 5000 Others Assets 2141 2107 34

Other Liabilities 5685 4279 1406

Other Funds 6773 7367 -594

Total 136292 118176 18116 Total 136292 118176 18116

Source: NABARD

The Financial Statement of NABARD is reflecting its effective contribution in rural sector,
there is a comparative growth in its reserves, funds and deposits where as the debentures
and borrowing have dropped down in 2009-10 .Liability towards commercial Bank
borrowings were paid off. Investment in agriculture and allied activities, industrial sector
and service sector were increased. During the year 2009-10, the total Working Funds
increased by 15.3% from Rs.1,18,176 crore to Rs.1,36,656 crore. The increase was due to
net inflow of RIDF Deposits (Rs.12,846 crore), STCRC Fund (Rs.5,000 crore),
Commercial Papers (Rs.2,499 crore) and Term Money Borrowings (Rs.519 crore). The
borrowings of NABARD (Rs.25,703 crore) constituted 18.48 per cent of its working funds
as on 31 March 2010.
2 .LITERATURE REVIEW
Lack of liquidity and poor management qualifications are the main constraints to the
restructuring of enterprises. Only an efficient financial market can overcome this bottleneck
Tackling all the tasks facing the financial sector in the process of transformation poses a
great challenge for the transition countries. For the rural poor in India, formal financial
services would enable them to maximize returns on their surplus, smooth their
consumption, and reduce their vulnerability to risk. However, their financial service
needs—which include consumption credit and cash savings (Duggal, 2002)— are seldom
met due to systemic problems in the financial sector and monsoon risk.
An important research agenda is to understand the dynamics of financial innovation. There
are both winners and losers from the introduction of new financial services and
opportunities for trade. Losers may include incumbent local financial service providers who
may stand to lose monopoly rents or market share in the face of increased outside
competition (Rajan and Zingales 2003; Platteau 1997), or those who might fear for the
collapse of local informal insurance mechanisms (Scott 1976). Just as common have been
the calls by organized groups of borrowers or activists for political and economic

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March 2012/ Volume 2/Issue 3/Article No-2/394-411 ISSN: 2249-7196

authorities to intervene to regulate allegedly exploitative or harmful activities of informal

moneylenders or landlords.
A precondition for the development of rural financial systems is a stable political and
macro-economic environment. Uncertainty about the future political situation of a country
and its economic development, particularly inflation, are unfavourable conditions for
investments. Moreover, policymakers should give clear signals in favour of rural
development, especially the development of inclusive financial institutions in rural areas.
Improved road infrastructure, telecommunication possibilities and security in rural areas are
essential in reducing transaction costs of financial services in rural areas, but also in
promoting trade linkages between rural and urban regions and in attracting other economic
actors.(InfoResources, September 2008).
There are already several very useful surveys and edited volumes of articles covering
important aspects of the now vast literature on rural financial markets and household
consumption behavior in the face of risk and uncertainty. A non-exhaustive list of key
survey references might include Von Pischke et al. (1983), Binswanger and Rosenzweig
(1986), Hazell et al (1986), Bell (1988), Gersovitz (1988), Besley (1994), Stiglitz (1994),
Townsend (1995), Morduch (1995), Meyer and Nagarajan(2000), Barry and Robison
(2001), Banerjee (2003), Fafchamps (2003), Dercon (2004), Armendariz de Aghion and
Morduch (2005) and the relevant chapters in Bardhan (1989), Basu (1997), Deaton (1997),
Ray (1998), and Bardhan and Udry (1999). While considerable overlap with these earlier
studies is inevitable in the present work, we have attempted to set this chapter somewhat
apart by focusing in more depth on relatively new developments in this fast growing field of
empirical and theoretical research. We have also attempted to place more emphasis than
earlier studies on studying the important role of financial intermediaries, competition and
regulation in shaping the changing structure and organization of rural markets, ather than
simply focusing on household strategies and bilateral contracting.
3 . METHODOLOGY
The approach taken was to trace the development of micro-finance at national level looking
specifically at the role of National Bank for Agriculture and Rural Development in the
configuration of the sector and then the particular SHGs funded by the banks. Secondary
research included the analysis of policy documents, overview of national level situation of
microfinance and also few case studies, and literature reviews. Primary research relating to
the microfinance overview and issues related to it was undertaken in Madhya Pradesh,
India. In-depth key informant interviews were held with SHG members and the bankers and
senior officials of National Bank for Agriculture and Rural Development.
4. SECTOR WISE DEVELOPMENT INITIATIVES BY NABARD IN 2009-10
NABARD is initiating innovative policies, practices and guidelines for rural financing for
providing credit facilities to Farm & Non Farm sectors by potential-linked credit plans
annually for all districts. They provide facilities for training, for dissemination of
information and the promotion of research including the undertaking of studies, researches,

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techno-economic and other surveys in the field of rural banking, agriculture and rural
development.
4.1.1 Farm sector
The Village Development Programme had been implemented in 953 villages of 437
districts across 25 States, as on 31 March 2010. Under the Tribal Development Fund,
financial assistance of Rs.236.19 crore was sanctioned for 79 projects, benefiting 63,113
tribal families. As on 31 March 2010, Rs.543.62 crore had been sanctioned for 191 projects
benefiting 1,56,330 families. Other developmental initiatives taken by the NABARD to
enhance production and productivity of rural farm sector comprises 59 watershed projects
in 14 states, enlarged agriculture area to 8.71 lakh hectares which goes to cumulative
financial commitment of Rs.958 crore. A “Pilot project for augmenting productivity of lead
crops/activities through adoption of sustainable agricultural practices” was launched in 900
villages at the national level with the aim of augmenting income of the farmers through
enhanced production and productivity of lead crops/activities.
The corpus of the Farm Innovation and Promotion Fund was enhanced from Rs.5 crore to
Rs.50 crore and 17 proposals in 11 states with financial assistance of Rs.155.37 lakh were
sanctioned during the year. Cumulatively, 78 projects with financial support of Rs.618 lakh
have been sanctioned, of which 25 projects with financial assistance of Rs.104 lakh have
been completed. The corpus of Farmers’ Technology Transfer Fund was also enhanced
during the year from Rs.25 crore to Rs.50 crore and 151 diverse and innovative proposals
for transfer of technologies were sanctioned a grant assistance of Rs.488 lakh in 22 states.
During the year, 16,590 Farmers’ clubs were launched taking the total number of clubs to
54,805 covering 1, 04,648 villages in 587 districts.
4.1.2 Rural Non-Farm Sector
Under the Rural Innovation Fund 155 innovative projects were sanctioned, taking the
cumulative number to 252. An amount of Rs.17.70 crore was sanctioned taking the
cumulative commitment to Rs.38.37 crore, as on 31 March 2010. An amount of Rs.10.69
crore was disbursed during the year for 252 projects taking the cumulative disbursements to
Rs.17.99 crore.The District Rural Industries Project was extended to 106 districts by March
2007 and 43 of them phased out by 2007-08, on successful implementation. During 2009-
10, GLC flow in 42 districts covered under various phases reached Rs.675.99 crore and
refinance availed of was Rs.11.11 crore. In all, 45,701 units were set up generating
employment for 1.42 lakh persons. The ‘Scheme for Strengthening of Rural Haats’
introduced in 1999 in DRIP districts was extended to all districts, village bazaar boards,
SHGs, NGOs and to PRIs/PACS, during the year. The quantum of assistance was increased
to Rs.5 lakh from Rs.3 lakh and coverage extended to include permanent structure/s as per
local requirements and a grant support of Rs.298.72 lakh was sanctioned to 87rural
haats.116 Women Development Cells were supported in 58 RRBs, 55 Co-operative banks
and three SCARDBs, with disbursement of Rs.40.39 lakh to address gender issues in credit
and support services. Under Marketing of Non-Farm Products of Rural Women and
Assistance to Rural Women in Non-Farm Development schemes, grant support of Rs.6.92
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lakh and Rs.17.56 lakh, respectively, were released.. To enable rural artisans/craftsmen 263
marketing events/ exhibitions, were supported with grant assistance of Rs.146.13 lakh
realize remunerative prices and to establish marketing linkages, 119 rural marts in 22 States
were sanctioned grant assistance of Rs.133.91 lakh. Swarojgar Credit Cards (SCC) with
credit limits of Rs.411.05 crore were issued for facilitating hassle-free availability of credit
for investment and working capital requirements of small/micro-entrepreneurs.
Table 4.1 Purpose wise Disbursements under investment Credit during 2009-10

Purpose Amount…in lacs Percentage in Total

Agriculture

Minor Irrigation 49673 4.1

Land Development 30367 2.5

Farm Mechanization 171466 14.3

Plantation & Horticulture 37740 3.1

Allied to Agriculture

Poultry 29682 2.5

Fisheries 5462 0.5

Dairy Development 72535 6.0

Storage/Market Yard 18722 1.6

Wasteland Development (Forestry) 646 .01

Bio-gas Plant 396 0.03

NFS

Seed Project 346599 29

Self Help Group 317356 26.4

SC/ST action plan 230 0.02

SGSY 15150 1.3

Others 98971 8.2

AH(others) 5297 0.4

Agribusiness & Agriclinics 616 0.1

Total 1200908 100

Source: NABARD

In table 4.1, the total disbursements of Rs.1,20,0,908 lacs under investment credit during
2009-10,is stating very progressive contribution of NABARD in agriculture and allied
agriculture sectors where it is observed that farm mechanization under agriculture
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disbursement is sharing 14.3% of total disbursements ,this contribution is eliciting its

efforts in the technological growth of the rural sector also. The self help group programmes
which is sharing 26.4 % of total is its key work area as it has encouraged people to employ
themselves by finding out prospective work areas which can help them in improving their
quality of life.
5. THE GENESIS OF RURAL INFRASTRUCTURE DEVELOPMENT FUND (RIDF)
Rural Infrastructure Development Fund (RIDF) was created in NABARD as a follow-up to
the announcement made in the Union Budget, 1995-96. RIDF was created with an initial
allocation of Rs.2, 000 crore with the objective of providing term loans at concessional
rates to state governments for financing rural infrastructure projects. RIDF Scheme with its
localized approach, wider all- India coverage, operational flexibility, social focus,
community’s involvement in planning, designing, managing and execution of works, etc
Table 5.1 Sector Wise Projects and Amounts Sanctioned (As on 31st March)
Sector RIDF XV(2009-10) RIDF 1 to XV(Cumulative)
Rs.Crore
No. of Share in total Amount Share in total No. of Share in total Amount Share in
Projects amount(%) amount(%) Projects amount(%) total
amount(%)
Irrigation 16697 42.8 4145.27 26.52 215718 53.55 33341.83 32.15
Rural 1110 2.85 2383.39 15.25 13450 3.34 11534.78 11.12
Bridge
Rural 4907 12.58 4581.9 29.32 73046 18.13 33747.17 32.54
Roads
Social 14816 37.97 2513.91 16.08 73142 18.16 13610.76 13.12
Sector
Power 12 0.03 149.59 0.96 750 0.19 1980.19 1.91
Agri- 1473 3.77 1855.76 11.87 26700 6.63 9503.27 9.16
Related
Sector
39015 100 15629.82 100 402806 100 103718 100

Source: NABARD

Fig 5.1 Sector Wise Share in Amount Sanctioned under RIDF (As on 31st March-2010)

Source: NABARD

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During the year 2009-10 (RIDF-XV), 39,015 projects were sanctioned involving aggregate
loan amount of Rs.15, 629.82 crore according to table 5.2. The cumulative number of
projects rose to 4,02,806 involving loan amount of Rs.1,03,718 crore. Of the total amount
sanctioned during the year, rural roads accounted for 29 per cent, irrigation projects 27 per
cent, social sector projects 16 per cent, bridges 15 per cent and agri-related 12 per cent.
Disbursements during 2009-10 under the ongoing tranches amounted to Rs.12, 387.54
crore. Additionally, an amount of Rs.6, 500 crore was disbursed to the National Rural
Roads Development Agency (NRRDA), taking the total disbursements during the year to
Rs.18, 887.54 crore. The cumulative disbursement as on 31 March 2010 stood at Rs.68,
439.74 crore, (excluding Rs.18,500 crore under Bharat Nirman). The position of year-wise
disbursements under RIDF excluding NRRDA under Bharat Nirman.
As per phasing of the projects, under various tranches (RIDF I to XV), state governments
had a total pool of projects of Rs.1,03,718 crore as on 31 March 2010. The state-wise
analysis of ratio of disbursements to the sanctions, as per approved phasing, under tranches
RIDF I to IX have been closed. The Sector Wise Share in Amount Sanctioned under RIDF
as on 31st March 2010 is presented in Fig.5.1.
5.1 ORG MARG STUDY
Social Audit of RIDF supported Gokul Gram Yojana by ORG-MARG was carried out.
Social Audit refers to a process of measuring and improving the social performance of a
project. It attempts to assess the people's interest, priorities and perceptions to make the
implementation process open and accountable to the people.
The Madhya Pradesh government is going to embark upon an ambitious Gokul Gram
Yojana to transform the 51 thousand odd villages of Madhya Pradesh. The scheme would
be launched from september , 25 , the birth anniversary of Pandit Deen Dayal Upadhyaya ,
from Chitrakoot. The scheme aims at providing better education , sanitation , health ,
drinking water , irrigation facilities besides preserving environment and ensuring efficient
administration by putting to optimum use the locally available resources in the villages
selected under the scheme.
Selection of Gokul Gramm- Under the Gokul Gram Yojana five villages would be selected
in each district depending on their specific conditions.. The number of villages may exceed
if necessary. The villages would be selected by district collectors in consultation with the
Minister -in-charge, Member of Parliament and the MLAs. The norms of selection would
be set at district level but the basis of selection would be soci-economic condition of the
villages. These villages would be a model and source of inspiration for development of
other villages.
Under the Gokul Gram Prakalp the villages selected to be developed as Gokul Grams are
humming with development activities and are poised for a metamorphosis. Nayagon, about
15 kilometer from Gwalior, is buzzing with various activities for its all round development.
A total of 60 works have already been completed in a very short span of time, which

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include construction of two tanks at a cost of Rs. 15 lakh and a C.C. road at a cost of Rs.
five lakh.
The population of the village is1326 which includes 714 men and 612 women. The total
240 families living in the village include 15 of general category, 28 scheduled castes and
remaining belong to Saharia tribe. The village has 150 cows, 150 buffalos and 400 goats.
There are two biogas plants and three Naped and vermicomposts each. No case of partition,
demarcation and mutation is pending. At present about one and half-quintal milk goes to
cities for sale. In winter season the village produces about two and half quintal milk. Three
beneficiaries have been selected under Godan Yojana. When asked Shri Parihar commented
that so far development was concentrated in urban areas, but now villages would be
developed through Gokul Gram Prakalp.
5.1.1 Impact - Perceived benefits from the project
There is no drinking water problem; however some shortage of electricity is there. Teachers
in the school are regular and punctual and mid-day meal is served properly. A woman
sanitary worker has been appointed and each household contributes Rs. ten to pay her.
Sense of personal hygiene has improved and 15 families have constructed individual
latrines. The sub block level meetings of gram sachivalay are held on third Tuesday every
month. Meetings of block level officers are held every Monday and the ANMs and health
workers conduct medical check-up and immunization the same day. The village has three
self-help groups of which a self-help group of women has recently started production of
joss sticks. The other two groups are being provided revolving fund. The time is not very
far off when Naya Gaon would be self-contained and no longer dependent on its needs.
6. RURAL INNOVATION FUND (RIF)
NABARD-SDC RURAL INNOVATION FUND (RIF) National Bank for Agriculture and
Rural Development (NABARD) in association with Swiss Agency for Development and
Cooperation (SDC) has constituted the "NABARD-SDC Rural Innovation Fund (RIF) " to,
inter alia, support innovative projects in Farm, Non-Farm and Micro-Finance Sectors
leading to creation of livelihood opportunities for the poor.
An illustrative list of areas is given below:
• Biological & Engineering measure/techniques that improve productivity of water.
• Design of economic and efficient water harvesting structures.
• Efficient water use systems: low cost micro-irrigation technology/ micro tube irrigation
technology, etc.
• Diversification of farm activities - agro-forestry, silvipasture, agro-horticulture and animal
husbandry etc.
• Organic farming - bio-fertilisers and pesticides.
• Development of location specific crops and agronomic practices.
• Extension of technology- Agri-clinics, Agro Service Centres, e-Service Centres, including
the feasibility of commodity trading/ Village Knowledge Centres.
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• Community farming.
• Contract farming.
• Insurance products for rainfed agriculture.
• Banking through SHGs, VWCs and user teams, Joint Liability Groups, etc.
• Portfolio approach to lending - basket of activities.
• Development of small hand operated/ power operated tools/ implements that will support
system diversification in rain fed farming/ crop husbandry.
• Support for design, development, plan and adoption of traditional efficient water
harvesting systems.
• Support for documentation of farmers' innovations/indigenous technological knowledge.
• Innovative rainwater harvesting for rural dwellings.
• Rural energy from biomas, agri waste.
• Techniques for increasing value of crop residues and non-crop biomass.
• Community regulation of distribution and use of waste and energy.
• Storage devices for agricultural and rural products.
• Innovative methods of managing Common Property Resources.
• Materials and designs for rural roads.
• Rural sanitation and waste disposal.
Rural Innovation Fund (RIF) is a fund designed to support innovative, risk friendly,
unconventional experiments in Farm, Non-Farm and micro-Finance sectors that would have
the potential to promote livelihood opportunities and employment in rural areas.
6.1 Guiding principles of RIF
• The activities must have the rural poor in their focus and must be innovative, experimental
and demonstrative in nature leading to reliability and commercial viability.
• The activities funded may involve development of new products, processes, prototypes,
technology, patenting and extension support.
• Appropriate action research and studies contributing to better understanding of rural
development issues, policy and process implementation may be undertaken.
7. MICRO-FINANCE AS A MAINSTREAM DEVELOPMENT INTERVENTION
Microfinance sector has navigated a long journey from micro savings to micro credit and
now entered the field of micro insurance, micro remittance and micro pension. The focus of
this programme has been on training and capacity building of partners, promotional grant
assistance to Self Help Promoting Institutions (SHPIs), Revolving Fund Assistance (RFA)
to MFIs, equity/ capital support to MFIs to supplement their financial resources and
provision of 100 per cent refinance against bank loans provided by various banks for
microfinance activities.
The Self Help Group (SHG)-Bank Linkage Programme, in the past eighteen years, has
become a well known tool for bankers, developmental agencies and even for corporate
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houses. With the small beginning as Pilot Programme launched by NABARD by linking
255 SHGs with banks in 1992, the programme has reached to linking of 69.5 lakh saving-
linked SHGs and 48.5 lakh credit-linked SHGs and thus about 9.7 crore households are
covered under the programme, envisaging synthesis of formal financial system and
informal sector.
7.1 The models of micro-finance In India
In this section, the data for the year 2009-10 along with a few preceding years have been
presented and reviewed under two models of microfinance involving credit linkage with
banks :
(i) SHG - Bank Linkage Model: This model involves the SHGs financed directly by the
banks viz., CBs (Public Sector and Private Sector), RRBs and Cooperative Banks.
(ii) MFI - Bank Linkage Model: This model covers financing of Micro Finance Institutions
(MFIs) by banking agencies for on-lending to SHGs and other small borrowers.
A total refinance support of Rs 3,680.70 crore was extended by National Bank for
Agriculture and Rural Development towards long-term and short term agriculture in 2010-
11, taking the cumulative refinance support in the state to Rs 21,745.55 crore. Out of this,
refinance assistance of Rs 980.14 crore was extended towards investment credit aiding
capital formation in farm and non-farm sectors, registering a 31.5 per cent rise over the
previous year, Dr V Tagat, Chief General Manager for National Bank for Agriculture and
Rural Development (Nabard), Karnataka, told reporters.
7.2 Promotional grant assistance under Micro Finance by NABARD
Credit flow to agriculture for 2009-10 was targeted Rs.3, 25,000 crore, the banking system
disbursed Rs.3,66,919 crore (provisional) surpassing the target by 12.9 per cent. Within the
banking system, Commercial banks, Co-operative banks and Regional Rural Banks
disbursed Rs.2,74,963 crore, Rs.57,500 crore and Rs.34,456 crore, respectively sharing 74.9
per cent, 15.7 per cent and 9.4 per cent of the total credit flow during 2009-10.
Table 7.2 Agency-wise Ground level Credit Flow
(Rs. crore)
Agency 2005-06 2006-07 2007-08 2008-09 2009-10 (@)Growth
Rate (%)
2005-10# 2008-09*
2009-10*
Co-op. Banks 39404 42480 48258 45966 57500 8.7 (-)4.7
25.1
R RBs 15223 20435 25312 26765 34456 21.0 5.7
28.7
Comm. Banks 125477 166485 181088 228951 274963 20.8 26.4
20.1
Others 382 0 0 226 0 - -
-
Total 180486 229400 254658 301908 366919 18.5 18.6
21.5

@: Provisional; #: Compound Annual Growth Rate; *: Percentage change over previous year.
Source: NABARD
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The table 7.2 is highlighting the credit flow in rural sector through different agencies .The
growth rate in credit flow has increased up to 25.1 % in Co-operative banks ,28.7% in RRB’s
and 20.1% in Commercial Banks and the overall growth is 21.5 %.the data is depicting the
five years scenario of credit flow which is emphasizing the increase in the participation of
agencies by increasing their credit Investment in rural sector.
8. SELF HELP GROUP PROGRAM
Table 8.1 The SHG Bank Linkage Program me spearheaded by NABARD in the
Microfinance Sector in India has yielded very significant results
S. Particulars Cumulative as
No on 31 March
2009-10
1 Total number of SHGs savings linked with banks 69.53 lakh
2 Out of total [of which] exclusive Women SHGs 53.10 lakh
3 Out of total [of which] -SGSY SHGs 16.94 lakh
4 Total number of SHGs credit linked during 2009-10 15.87 lakh
5 Out of total [of which] exclusive Women SHGs credit linked 12.94 lakh
6 Out of total [of which]-SGSY SHGs credit linked 2.67 lakh
7 Total number of SHGs having loans outstanding as on 31 48.51 lakh
March 2010
8 Of which exclusive Women SHGs 38.98 lakh
9 Of which-SGSY SHGs 12.45 lakh
10 Estimated number of of families covered upto 31 March 2010 97 million
11 Total savings amount of SHGs with banks as on 31 March 6198.71 crore
2010
12 Out of total savings of exclusive Women SHGs 4498.66 crore
13 Out of total savings of SGSY SHGs 1292.62 crore
14 Total amount of loans disbursed to SHGs during 2009-10 14453.30 crore
15 Out of total loans disbursed to Women SHGs 12429.37 crore
16 Out of total loans disbursed to SGSY SHGs 2198.00 crore
17 Total amount of loans outstanding against SHGs as on 31 28038.28 crore
March 2010
18 Out of total loans o/s against Women SHGs 23030.36 crore
19 Out of total loans o/s against SGSY SHGs 6251.08 crore
20 Average loan amount outstanding per SHG as on March 2010 57795
21 Average loan amount outstanding per member as on 31 March 4128
2010
total number of banks submitted Mis
22 Commercial banks [public] 27
23 Foreign banks + Private banks 19
24 Regional Rural Banks 81
25 Cooperative Banks 318
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26 Small Industries Development Bank of India 1

Capacity building of partner institutions
27 Number of programmes conducted during 2009-10 6804
28 Number of participants covered during 2009-10 2.54 lakh
29 Cumulative number of participants Trained upto March 2010 24.55 lakh
30 Grant support during the year 2009-10 9.93 crore
31 Cumulative fund support upto March 2010 45.02 crore
Refinance support
32 Refinance to banks during 2009-10 3173.56 crore
33 Cumulative refinance released upto 31.3.2010 12861.65 crore
Source: NABARD

The SHGs have to be assessed in terms of Group dynamics like cohesion, vibrancy, goal-
oriented action, participation of members, democratic decision and collective leadership.
The appraiser has to see whether the group is functioning, actually as a group, where the
members have come together, whether it is for obtaining loan from bank or the group sees
other purposes, what is the group discipline and whether it is sustainable.
The basic principles on which the SHGs function are:
i. The members of the groups should be residents of the same area and must have an
affinity. Homogeneity of relationship could be in terms of caste/ occupation/ gender or
economic status (which is critical).
ii. Savings first, credit thereafter
iii. SHGs should hold regular meetings
iv. SHGs should maintain record of financial and other transactions
v. They should have norms regarding membership, meetings etc.
vi. Group leaders should be elected by members and rotated periodically
vii. Transparency in operations of the group and participatory decision making
viii. The group should decide rates of interest on loans
ix. Group liability and peer pressure to act as substitutes for traditional collateral.
9. FACTS & ISSUES IN CREDIT EXTENSION TO RURAL SECTOR THROUGH
NABARD
The provision of micro-finance to the poor has been limited by two factors, the first of
which is the perceived risk of lending to people who lack access to adequate collateral and
credit references, and the second is the high transaction costs involved in administering
small deposits and loans. Over the past two decades the major innovations have been in the
development of models of financial provision, which overcome these constraints. It is found
that more than 95 % SHGs are formed by the women members. The SHGs formed by the
women are managed well than the male SHGs. There is more than 98 % recovery ratio of
loans in case of women SHGs, where as it 90 to 95% in case of male members. It is to be
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noted that more than 60% SHG under the SGSY scheme, wherein government has provided
subsidy, have failed to repay the loans to the financing agencies, whereas the SHGs without
subsidy schemes have more than 95% recovery. More than 50 % women SHGs have
utilized the funds in entrepreneurial activities, whereas less than 20% SHGs have started the
entrepreneurship activities. The women SHGs are well managed than the male SHGs. The
women SHGs have higher saving rate and regular payment habits; on the other hand the
men SHGs are most mismanaged. Higher rate of interest i.e. 12% to the SHG groups by the
banks, on the other hand the banks get the refinance from the NABARD at 6%.For taking
loans the banks insist collateral securities. For making documentation for loans the SHGs
have to register the loan documents, wherein they have to pay the stamp duty on the loan
amount. The most of the members are unaware about the benefits of SHGs. The
Cooperative Banks and Cooperative societies have played more powerful role in the
development of SHG and micro finance than the commercial banks. There are several
reservations about micro-credit. First there is the critique that microcredit may not be an
effective pro-poor strategy; second there are doubts about the ability of microcredit
institutions to juggle the twin goals of institutional sustainability and poverty alleviation.
Finally there are concerns that minimalist models such as microcredit are not sufficient to
support the diverse needs of the informal economy.
10. SUGGESTIONS
The development agencies should promote innovation in farm, non-farm sector which
contribute overall rural development. The innovation may be about system, managerial,
business process or technical related issues. The credit should be extended on commercial
basis, but should build program that enhance capacity of the participating members. Micro
Enterprise/SHGs should undertake any legitimate economic activity and try to increase the
income level as a micro enterprise. Only mature groups who are undertaking savings and
lending activities regularly and smoothly - need to be covered for promotion of micro
enterprises. A checklist needs to be prepared for identification of such groups. The special
training programmes for Entrepreneurship development & skill building and exposure and
role of technology should be organised.The facilities for linking to local and distant markets
and help in providing backward and forward linkages should be provided by the NGO,
Government or NABARD. Special Provision for business counseling and capacity building
should be undertaken by Self Help Group Promoting Institutions (SHPI) and micro enterprise
promotion agencies (MEPAs) partners. Resource mapping of the region covering physical,
financial and human resources, feasibility studies for identification of economic activities
that are technical and financially viable in the region. Adopting participatory methods for
helping the group members in selecting right type of economic activities (e.g., participatory
assessment of what comes in and what goes out of a village).Many of the cooperatives are
getting refinance form NABARD to lend at affordable rate however, this situation may not
sustain in future. In due course the Cooperative Act should be amended and the entire
cooperative banking would be brought under one umbrella and the problem of dual control
would be solved. Low cost credit can only be given when low cost deposits are available.
Today banks are running after collecting deposits. Some cooperatives are facing reputation
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risk in collecting deposits from public however; government should intervene and help
cooperatives in meeting the credit needs of the poor and the unserved population and bring
them under the ambit of banking services. Most people who are deprived from the banking
services are forced to resort to non-institutional expensive and exploitative credit, paying
very high interest rates. If such people were targeted they would comprise a good market for
the cooperatives. There is a need for identifying such target group and meeting their needs
for attaining better inclusions in future. Government’s role should be improving the fairness,
transparency and efficiency of the cooperatives institutions and coordinate efforts to
revitalize a powerful institution in future. Involvement of participating member in any type
of organization is the most crucial factor in success of the entity. Peer pressure in SHG acts
as catalyst in repayment of a loan. Subsidized loan tends to higher failure rate. It therefore
suggests that loan should be granted on commercial basis, but the bank or developmental
agency should support business process of the enterprise that increase efficiency and
effectiveness of the social enterprise like cooperatives/SHGs. It should also design & deliver
training program that motivate members to involve in the activities of the parent
organization. Therefore credit should be extended to group of people incorporating a social
formal or informal institute rather than an individual.
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www.nabard.org
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