ADB offers $1bn loan for rural credit

The rural co-operative credit sector in the country is set to get a boost with $1 billion loan from the Asian Development Bank (ADB) to the centre.

The loan, approved for the Rural Cooperative Credit Restructuring and Development Programme, will be released in four tranches, before December 2009.

The loan agreement was signed between Arvind Mayaram, joint secretary, department of economic affairs, and Tadashi Kondo, country director - India Resident Mission of the ADB, New Delhi, in the presence of Finance Minister P Chidambaram on Monday.

The first tranches will be of $250 which will be released this month, followed by three tranches of $250 million, $300 million and $200 million before December 2009.

States that will benefit from the ADB loan include Andhra Pradesh, Maharashtra, Orissa and Rajasthan, which have signed a memorandum of understanding with the Centre for rural credit restructuring. Either Gujarat or Orissa would also benefit from the loan.

In addition to the ADB loan, a parallel co-financing of 140 million euros, will be provided by the German Bank for Bank Reconstruction & Development (KfW) for the cooperative credit restructuring programme.

The loan will be provided from ADB's ordinary capital resources, with a 15-year term, including a grace period of three years. The interest rate will be determined in accordance with ADB's Libor-based lending facility, and other standard terms and conditions.

The department of cooperative revitalisation and reform at Nabard's head office will be the programme management unit for this loan.

The programme, the largest such programme undertaken by the Bank in the country, would address farmers' problems by undertaking a comprehensive reform of the country's cooperative credit structure, an ADB statement said.

The Rural Cooperative Credit Restructuring and Development Programme seeks to assist the government in carrying out the recommendations of the Vaidyanathan Committee between 2006 and 2010. The estimated cost of implementing the programme in the four states being included initially is $ 1.43 billion.

The Centre had been actively pursuing the rural credit restructuring programme with ADB and towards this end, the finance minister had met ADB top brass earlier this year.

The UK government too, through the department for international development, would provide a $2 million grant for technical assistance for performance monitoring, capacity building in local implementation units and introducing innovative schemes to improve credit outreach to poor rural women.