finance for farmers

Better Finance Options For Farmers Through NBFCs

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Have you noticed that in recent times, the share of agriculture to India’s GDP has reduced?

The current share of agriculture to India’s GDP is around 14 per cent in 2012-13, according to the Central Statistics Office (CSO). This has reduced considerably over the past eight years. With the need to reach the masses across the country, RBI has moved beyond reaching out to banks and has relied on NBFCs or Non-bank Financial Companies for providing rural finance. For farmers, the question to get the best credit finance always remains elusive, yet trustworthy NBFCs like Mahindra Finance are not leaving any stone unturned to provide the required finance.

A new wave:  Will NBFCs Meet the Demand for Tractor Finance?

What is the logical way of accessing long-term finance or tractor finance? Most farmers have access to tractor financing from development finance institutions or DFIs that have converted into banking institutions over time. The focus of DFIs has shifted, as a result NBFCs such as Mahindra Finance and Shriram Transport Finance have gained popularity, steering the course towards becoming leaders in rural finance.

Here Comes the Sun: Good News for Rural Credit-Seekers

With a view to push growth rate that has remained at a sluggish 5% in the current year, RBI has improved its regulations to allow financial institutions the ability to offer short, medium and long-term finance. These institutions are currently in a better position compared to their previous years. Here’s a look why anyone can access rural finance from your nearest NBFCs:

  • Easy Access: Access to rural finance particularly tractor finance that include loans is now easily available. Farmers need not hesitate or scout around for access to funds when
  • Non-concentration of operations: The decentralization of regional operations has opened opportunities for farmers across the country.
  • Present Pan-India: Finance companies are present all over the country with a view to reach the masses with further incentives by the RBI to open branches.
  • Good credibility in high-risk areas: Under RBI’s regulations, the NBFCs benefit where the risk is high and where there is no availability of credit. In these areas, finance companies offer credit in a speedy and flexible manner.
  • Attractive company fixed deposits: Company offer fixed deposits as a better way of raising finance. With this, farmers benefit directly from the profits of the company. They get a direct advantage of high interest rate offered with company fixed deposits.

Holding Hands All The Way: RBI Helping Rural Finance

Considered as a priority sector, RBI has ensured that farmers receive better financing. Several benefits are provided by the RBI for NBFCs to provide finance.

  • As per the Nair Committee report, NBFCs can give direct finance to individual farmers or other small help-groups in the form of micro-finance.
  • NBFCs do not need to maintain a mandatory CRR or SLR such as banks. This gives them enough flexibility to offer credit to farmers as a working capital or as personal loans.
  • NBFCs are being allowed to directly compete with the other large banks in order to woo farmers for direct finance at attractive rates.
  • Additional bank licenses are being allowed to be given to finance companies to spread their reach even further.

Spoiler Alert for NBFCs:

With the numerous efforts by the RBI to allow farmers further access to credit, there is bound to be larger finance available. Yet, with the recommendations from the Usha Thorat committee, the operations of the NBFCs would be under greater control by:

  • Monitoring NBFCs: The RBI needs to monitor the outflow of finance of the NBFCs with stricter regimes as much as they need to monitor banks.
  • Maintaining certain rates for priority sectors: NBFCs are required to provide credit at certain interest rates to benefit priority sectors.

Farmers need not wonder about the next source of finance for their operations. This is all due to the fact that, RBI has not left any stone unturned to give unbridled tractor finance through NBFCs like Mahindra Finance. One hopes that these efforts can translate into a better contribution of the agricultural sector to India’s GDP and the country’s growth rate.

Author: Anupama Sughosh, an independent financial blogger
Disclaimer: The views, opinions and investment tips expressed by the author are her own and not that of the website or its management linked within the document. We advise users to check with certified consultants or experts before venturing into any investment decisions.

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