CREDIT REQUIREMENT FOR RURAL NON – FARM SECTOR09

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CREDIT REQUIREMENT FOR RURAL NON

FARM SECTOR AND MICRO ENTERPRISE


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Introduction

The termnon

-farm

encompasses all the non-cropagricultural activities; it includes manufacturing

activities, mining and quarrying, transport, trade and

services in rural areas. Further, the seasonal and

contractual jobs unconnected with farming as such,available within the village or a nearby town are a

part of Non-Farm Employment (NFE).

Definition

Rural nonfarm sector employment is defined as anyform of employment other than farm employment in

the type of wage, self, or unpaid family labor.


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Constraints for Non- Farm Sector

A. Labour market failure

B. Credit market failure

Huge unmet demand for credit;

Formal credit provision has large transaction costs; New subsectors cannot attract private sector

investment

C. Commodity/Product market failureLack of information on market demand;

Middlemen often seen as exploiters while theirpotential as sources of market information

overlooked


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Other important constraints A. Infrastructure constraints

Lack of power/water supply/roads B. Skills

Skills base often inadequate to develop potential newsubsectors

Lack of adequate or appropriate training opportunities to address theskill shortage

Strategies/Approaches:Start with a detailed analysis of markets;

Disaggregate these to identify potential growth engines in specificareas;

Disaggregate again to identify those sectors that provide acombination of:

o Economic growth;

o Employment opportunities;

o Poverty reduction (i.e. providing employment opportunities for the

poor).


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Credit requirement for Micro Enterprise

Development

Nearly 40% of India's population of a billion plus lives in abject

poverty. In India, many are poor because of one simple reason

'lack of regular income'. To add to their miserable plight, over 90% of

the rural poor are deep in debt. Unable and unwilling to access

banks or to apply for loans , the poor turn to local moneylenders, who

charge 60% to 120% interest (per annum) or even more, trapping the

poor into extreme poverty.

Micro Enterprise Development (MED) is a proven way to strengthen

viable, small businesses, resulting in increased household income

and savings, and thus, alleviating the crunch of economic poverty.

World Vision works alongside enterprising members, helping them

realize their economic potential and proving that they have the

capacity to build their own, small Micro Enterprise units.


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Constraints of Micro- enterprises in RuralAreas

Tendency to remain small due to lack of resources. Lack of adequate infrastructural support in rural

areas (power, communication, markets)

Market information regarding inputs and outputs.

Economic of scale . Inadequate technological transformation to meet

market quality standards.

Inability to access financial capital .

Lack of standards and standardisation. Absence of brandequity toenter niche market.

Absence of clear-cut government policies.


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Credit Needs for Micro-enterprises

There are over 150,000 credit retail outlets ofcommercial banks , regional banks and cooperative

banks

The khadi and village industries boards of different

states are expected to provide concessional loans to

certified khadi and village industrial organizations.

The need for non-farm sector credit was addressed in

1982, with the creation of NABARD. The creation of

SIDBI in 1990 opened another channel for SSIs .

Both SIDBI and NABARD have a number of promotional

and developmental programmes ,including primary

marketing support, upgrading technology and adopting

areas for special development inputs.


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Key to Success of Micro Enterprises

Access to information about profitable products,

availability of raw materials and market

Access to knowledge and skills

Access to training Access to finance

Access to developing partnership with private sector for

greater market


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The micro credit summit, Washington(February 1997)

Declarations:

Build institutional capacity to reach very poor people indeveloping countries by strengthening existinginstitutions preparing new practioners through trainingprogrammes and promoting appropriate policy, legal andregulatory changes.

Similar measures to reach the very poor in industrializedcountries and economies in transition.

Institution should develop an Institutional action planoutlining how they could contribute to the goal of themicro credit summit.

Enlist others in the campaign to meet the goal of thesummit, promote a learning agenda, and encourageinstitutional action plans.

Work with the media to expand awareness, fuelimplementation and enlist new participants in the

campaign


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Informal Sector Credit

Informal Sector Credit Money lenders rarely provide for capital assets

acquisition. They concentrate on lending for

consumption needs and social/medical

contingencies while trader-lenders provide workingcapital . Thus ,venture capital for the rural non-farm

sector is generally financed from own resources and

supplemented by loans from friends and relatives.


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Institutional Sector Credit

Institutional Sector Credit Credit is the provision of resources (such as

granting a loan) by one party to another party where

that second party does not reimburse the first party

immediately, thereby generating a debt, and insteadarranges either to repay or return those resources

(or material(s) of equal value) at a later date. It is any

form of deferred payment. The first party is called a

creditor, also known as a lender, while the secondparty is called a debtor, also known as a borrower.


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Karmakar K.G., 2003, Rural Credit And Self-HelpGroups, Sage publication, New Delhi.

http://www.nabard.org/nonfarm_sector/index.asp

www.mha.nic.in
http://www.nabard.org/nonfarm_sector/index.asphttp://www.mha.nic.in/http://www.mha.nic.in/http://www.nabard.org/nonfarm_sector/index.asp


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CREDIT REQUIREMENT FOR RURAL NON – FARM SECTOR09