Micro Financing
Microfinance refers to the provision of a wide array of financial services such as microcredit, savings, insurance, and remittance facilities tailored specifically for low-income individuals or groups. These services are often targeted at the rural and urban poor who are traditionally excluded from formal banking services. The core aim is to promote financial inclusion and economic empowerment, especially among women and vulnerable communities. By enabling access to credit and related services, microfinance empowers individuals to start or expand income-generating activities, improve household consumption, and enhance resilience against financial shocks.
Key Features:
- Small loan amounts, often ranging from a few thousand to a few lakhs
- Minimal or no collateral required for borrowing
- Often structured around group lending models such as SHGs and JLGs
- Emphasis on social development, poverty reduction, and women’s empowerment
- Support services such as financial literacy, skill development, and enterprise training
- High repayment rates due to social collateral and peer monitoring
Kisan Credit Card (KCC)
The Kisan Credit Card (KCC) scheme, launched in 1998 by NABARD, was designed to provide timely and adequate credit to farmers. It ensures that farmers have access to short-term credit for crop production, as well as term credit for investment in allied and non-farm activities. Over time, the scheme has been expanded to include animal husbandry, dairy, fisheries, and other farm-related activities.
Features of KCC:
- Hassle-free access to credit with minimal documentation
- Sanctioned limit based on operational landholding and cropping pattern
- Flexible withdrawal and repayment options
- Coverage for crop cultivation and allied agricultural activities
- Insurance coverage for crop failure and personal accident/disability
Loan Facility under KCC:
- Short-term Credit: For seasonal crop-related expenses
- Medium-term and Long-term Credit: For farm infrastructure and equipment
- Term Loans: For investment in dairy, poultry, fisheries, etc.
Terms and Conditions:
- 2% interest subvention for timely repayment
- Valid for 5 years with annual reviews
- Grace period depends on crop and activity
- Collateral-free up to ₹1.6 lakh
- Higher amounts need security as per RBI guidelines
Prerequisites / Eligibility Conditions:
- All types of farmers, including tenant farmers and SHG members
- Land records or proof of farming activity
- KYC documents like Aadhaar, PAN, residence proof
Credit Limit:
- Based on Scale of Finance and cropping pattern
- Includes crop loan, household needs, machinery upkeep
- Annual enhancement based on inflation and repayment record
Additional Benefits:
- Rupee Debit/Smart Card for transactions
- Insurance: ₹50,000 for death, ₹25,000 for disability
- Digital Access via mobile/internet banking
Lead Bank Scheme (LBS)
Introduced in 1969, the Lead Bank Scheme assigns a major commercial bank as the lead bank for each district to coordinate banking and developmental activities. It aims at district-level financial inclusion and economic development.
Roles of Lead Banks:
- Prepare District Credit Plans
- Monitor credit disbursement to priority sectors
- Promote government schemes and financial literacy
- Conduct digital banking and outreach programs
Regional Rural Banks (RRBs)
RRBs were established under the RRB Act, 1976, to provide banking services in rural and semi-urban areas. They are owned by the Central Government (50%), State Government (15%), and Sponsor Bank (35%).
Functions of RRBs:
- Deliver affordable credit and banking to rural populations
- Target marginal farmers, artisans, and laborers
- Implement financial inclusion and subsidy schemes
- Promote digital and biometric-enabled banking services
Scale of Finance
The scale of finance is the cost estimated for cultivation of a crop per acre/hectare. It is recommended annually by the District Level Technical Committee (DLTC) based on input prices, cost of production, and farming practices.
Significance:
- Basis for KCC loan assessment
- Ensures standardized loan amounts
- Supports fair and adequate credit disbursement
Unit Cost
Unit cost refers to the average cost of establishing a productive agricultural unit, such as dairy, poultry, or fishery. It helps in term loan determination and investment planning.
Importance:
- Helps banks assess feasibility of loan applications
- Used in preparing project reports and calculating subsidies
- Crucial for planning investment in agricultural enterprises
Conclusion: Microfinancing tools like KCC, Lead Bank Scheme, RRBs, Scale of Finance, and Unit Cost collectively create a strong rural credit ecosystem. They promote sustainable agriculture, inclusive economic development, and upliftment of rural livelihoods.