Role of Financial Institutions in

Rural Entrepreneurship
- coolkarni
• Rural India – Agriculture

• Low productivity → Low income → Low

investment

• The provision for entrepreneurship

development has increased the production
and productivity to great extent
• Private money lenders, and traders and
commission agents dominated the rural
areas
• Now nearly 50-60 % of investment
requirements are provided by organized
agencies
• Gorewala committee report-
recommended the need of Govt support
• But the credit from organized sector was
not sufficient to cover the requirements

• As a result commercial banks were

brought in to picture
 1950-51 1980-81
Government 3.3 4.0
Cooperatives 3.1 30.0
Commercial 0.9 20.0
banks
Money lenders 75.2 35.0
and comission
agents

Friends and 14.2 10.0

relatives
Others 3.3 1
• In 1968 the social control was improved
giving opportunity to transact business in
rural areas- result was not encouraging
• July 1969- prime minister nationalized 19
commercial banks – lead to expansion of
branch network in rural areas
• Today there are 28 nationalised banks
50% of branches are operating in rural
areas
 Type of credit for investment:
Short term loan:
-for 18 months
- working capital loan given to industrial
establishments
- usually without any collateral security
Medium- term loans:
- for machinery etc
- investments involves lower amount of
capital
- can repay in 5-8 years
Long term loans:
- For high investment purpose
- Collateral security is needed
- Can repay in 20 years
 Rural credit institutions:

• National bank for agriculture and rural

development
• Commercial banks
• State cooperative banks
• State cooperative agriculture and rural
development banks
 NABARD

• Providing finance facility to all other

institutional agencies
• The rural credit department & agricultural
refinance and development corporation
were merged to form NABARD in 1982
July 12
 NABARD’S MAIN FUNCTIONS :
• Refinance to cooperatives and RRB
• To provide financial support in times of
natural calamities
• Contribution to share capital of
cooperatives engaged in rural area
• Loans to state govt for contribution to
share capital of cooperative organizations
• To coordinate the activities of rural credit institutions
o facilitate training. Research for rural development

• During 2002-03 total assets of nabard were 50,885

crores
• There was 13% growth and PBT was Rs.1524
 Credit operations in 2002-03:
• Short term credit limit sanctioned
Rs. 7,927 for seasonal agricultural
operations
• Rs. 153 crore for other than seasonal
operations
• Rs. 551 crore for cooperative society
• Rs. 493 crore to RRB’s
• Rural infrastructure development fund
Rs. 17,145 crores by 2003

• Support for micro financing and financial

development programmes.
 Commercial banks:

• There are about 100 commercial banks

• 51,595 branches of which 40 % were rural

branches, semi urban 25 % and urban
19%, and metropolitan branches 16%.
• 40 % of the total advances must come
from rural areas
 State cooperative banks:
• Offer only short term loan
• Operate at state level with branches in
rural areas
• The share holders and members are from
district central cooperative banks
• It operates in district level and village level
• Financed by NABARD
 State cooperative agricultural and
rural development banks:
• Offer medium term and long term loans

• There 19 banks and 1219 branches

• Operating in village and district level

• There is no banking operations

 Regional rural banks:
• There are 196 RRB’s mainly to support
agriculture
• Also called as grameen banks
• There are 6 metropolitan, 348 urban, 1875
semi urban
• Offer all the tree types of loan
Thank you……