Devises scheme to improve share capital, deposit safety of 92,000 societies.
The inspiration is from abroad; the idea is to boost the country’s primary agriculture credit societies (PACSs). The National Bank for Agriculture and Rural Development (Nabard) has planned to implement a country-wide programme in a bid to improve the share capital and deposit safety of over 90,000 PACSs.
The proposed institutional protection and deposit safety scheme (IPDSS) will be on the lines of similar projects that are successfully operating in two European countries: Germany and Hungary.
The apex development bank is devising the scheme at a time when members these days are hesitant to keep deposits even with their own PACSs, unsure about their safety. IPDSS has been drafted, considering that such deposits are not being covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC) and on noting that the the deposit insurance schemes of the states have remained only on paper, Nabard officials said on Tuesday.
The government-run institution believes that it should go for a sustained campaign to instill the habit of thrift among farmers — like what self-help groups do. “It is necessary as part of the financial literacy and counselling initiatives,” a Nabard official told Business Standard.
He says the IPDSS will boost such an initiative. “The critical issue is increasing member participation in the affairs of PACSs and ensuring that the members have a substantial financial stake in the cooperative. As PACSs were often formed as state-led initiatives in the name of the “poor farmer”, the face value of membership fee or a share in a PACSs has often remained at a paltry Rs 10, or at best Rs 100 per member. And, more often than not, even this was provided by the state under ‘universal membership’ campaigns.”
Such a low share-price, the official notes, has no value when it comes to the capital of even a small financial institution like the PACS. “The share capital of a member is linked to the quantum of loan, thereby, notionally increasing the capital base of the cooperative. But the fact remains that unless dividend is paid on such share capital, the cost of credit from a cooperative becomes much higher than that from competing banks, including RRBs (regional rural banks) and commercial banks.”
The 1982-founded Nabard’s newest move comes at a time when poor resource base of PACSs, their continued poor management and governance, and lack of effective member participation continue to be major barriers to increasing credit flow through the cooperative credit societies. According to Nabard, PACSs have an average membership of about 1,400 and owned funds of Rs 13 lakh per society.
However, barring around 22,000 PACSs in the four southern states and West Bengal (where average PACS-level deposits are around Rs 90 lakh), the average deposits in the remaining 70,000-odd PACS in the country is around Rs 9 lakh per society. That is, less than Rs 650 per member. The downside of the limited resources of PACS has been to the determent of members, as they have been often driven to operate within credit-rationing frameworks.
Today, Nabard also plans step up its efforts to transform PACSs into one-stop shop for farmers. “As the first step of a national drive, we have started a planned initiative to develop at least five such multi-purpose PACSs in each district within one year. These will have demonstration and demand effect and help other PACSs in the district to develop similarly,” the official notes.
Available in some states are examples of PACSs engaged in procurement, providing warehousing facilities, stocking and providing other inputs including seeds and saplings, leasing out farm equipment, becoming e-enabled common service centres providing land records and information on weather, market prices and extension advisories. “Such societies also need to provide other financial products, especially insurance, and enhance their fee based income,” he adds.
In order to overcome the limitations of the low resource base of district central cooperative banks and state cooperative banks, Nabard has decided to make available a new product of lending to PACSs through RRBs and commercial banks.
Besides, Nabard is also designing a programme to equip selected PACSs in each district with warehouses conforming to the requirements of the Warehousing Regulatory Authority. This is done to ensure that farmers benefit from product aggregation, quality storage and enable them to take pledge loans but even trade against warehousing receipts.
“To provide such benefits to farmers, the PACSs will have to collaborate with larger bulk handling entities — they may even be in the private sector,” the official notes.
