‘This document Is authorized for personal use only by “== ‘shall not be reproduced or distributed without express written permission from Indian institute of branagement-kgmedabad... (2047, 1 Indian Institute of Management TIMA/CMA0530T EC Ahmedabad Technica Note Rural Financial MarketinIndia =~ Rural Financial Market (REM) as a subset of financial market can be defined as an institution that provides continous linkages between suppliers and users of funds inthe rural area. REM encompasses capital market, credit market and funds or money market as its segments, not necessarily mutually exclusive, It includes all transactions in such financial instruments as currency, bank deposits, loans, mortgages, government and other bonds, corporate securities, etc. In addition RFM in India also includes non-monetary transactions quite common in rural India. As transaction takes place between partiés, RFM consists of buyers and sellers of financial instruments. As buyers and sellers generally are located at distant places and are not directly in touch with each other's certain agencies/individuals help them in these transactions. In other words, RFM includes all those agencies, which deal with the purchase and sale of financial instruments. The central monetary authority influences RFM through deliberate and non-deliberate institutional instruments of intervention in the market forces. It plays an important role in sponsoring financial agencies and encouraging financial intermediation. Thus, RFM is made up of central monetary authority, banks, financial, companies, bankers, moneylenders, traders, self help groups and individual borrowers and lenders. Role of REM. i ‘The REM performs two major functions: i) it facilitates transfer of funds from supplies to users and ii) it allocates these funds among competing users. In other words, mobilising rural savings and their allocation by way of eredit use are the twin objectives of RFM. These are achieved thus: is i) RFM tends to strike the equilibrium between demand for and supply of loanabte funds in rural areas. To achieve this financial intermediation undertakes several economic functions such as a) acquisition of funds from the suppliers and changing their ‘geographic locations, and b) modifying yield, risk and liquidity of individual savings to ¥ debt instruments, This is acquired because financial instruments vary in risk and liquidity and preferences of buyers and sellers differ with respect to these characteristics. fi) RFM encourages rliral savings and investment through transfer of income from savers to usersand vice versa. iii) REM asa segment of overall financial market ensures intersectoral flow of funds and thus promotes financial mobility. iv) REM provides elasticity to the flow of funds by signaling the allocation of funds to financial alternatives through interest rate, Prepared by Professor Gurdev Singh; Indian Institute of Management, Ahmedabad, (Revised in 2006) ©1981 by the Indian Institute of Management, Amedabad. National Cooperative Development Corporation (NCDC) was established in 1962 to take up financing of planning and promotion programme for production, marketing, processing,This document is authorized for personal use only by * Of MIT School of Business till 30% {2017. It shall not be reproduced or distri. ved. chout express written permission trom Indian ‘Management, Anmedabad.- of13 IIMA/CMA053% storage, export and import of agriculture produce on cooperative principles. The assistance is provided under centrally sponsored schemes and corporations own schemes. The centrally sponsored schemes included cooperative storage with corporation’s own schemes. ‘The centrally sponsored schemes included cooperative storage with international, aid, cooperative marketing, processing and storage programmes in under devel ae margin money assistance to village societies for distribution of consumer articles in rural areas, finance for cooperative sugar mills, cooperative spinning mills, ete. The corporation's own schemes included storage, agro processing, weaker s agricultural marketing, rural consumer activity, agro services and promotio: levelopment programmes. Insurance companies apart from mobilising rural savi ide loans for certain activities such as housing, health care etc for their policyholders. Rost offices in rural areas mainly mobilise savings. & In addition there are some institutions which are directly or iated with the supply of rural credit. For instance non-banking financial & th as BASIK, self generating cooperatives in AP and new generation commercia as ICICI bank are linked to rural finance. The non-governmental financial institutions'fegistered as non-profit ‘companies such as Sangamithra, unregistered finance companies and self managed financial institutions like chit funds also formed a part of rural finaiicial system.“ment, Ahmedabad. lent is authorized for personal use only by of MIT School of Business till 30th September ent is authorized for pe erear distributed without expres> written permission from Indian institute of Bof id TIMA/CMA0530TEC Fig 1: Structure of Rural Financial Market Government of Indi & Ministry of Finance (Banking Dep) Ministry of Agriculture (Rural Devp Dep!) 4 e TDA, IBRD, ‘ADB Reserve Bank of india mment |. Ministry of Revenue