RBI issues guidelines for bank financing joint farming groups of small farmers

The Reserve Bank of India (RBI) has come out with detailed guidelines for bank financing of `Joint Liability Group (JLG)' consisting of one or more members from within a self-help group (SHG) of subsistence farmers.

This, according to RBI, is because a few members of SHGs may graduate faster to start or expand economic activities requiring much higher levels of loans than other SHG members.

In such cases, other members may hesitate to provide mutual guarantees for larger-sized loans for these members.

RBI wants banks to encourage the creation of such enterprise / livelihood based JLGs within SHGs by providing finance in addition to the loan / credit limit extended to the SHGs.

Nabard will provide 100 per cent refinance assistance under investment credit to all banks against their lending to JLGs.

Nabard will also provide grant assistance to banks and other JLPIs for formation, nurturing and financing of new JLGs at the rate of Rs2,000 per JLG. Banks have the option of entering into a tripartite agreement with Nabard and other JLG promoting Institutes (JLPI) where they should take the onus of extending credit support to JLGs and Nabard will provide grant assistance to the JLPIs for promotion and nurturing of JLGs.

The incentive will be available to the bank even if they use their own staff or BC/BF as their JLPI. The incentive is linked with the financing of the JLGs and the amount will be released in three installments.

First installment of Rs1,000 will be released after disbursement of loan by the bank; the second installment of Rs500 after one year from the date of loan disbursement subject to the certification by the financing bank that the loan repayment without default by all the individual members of the JLG and the third installment of Rs500 would be released after the end of second year from the date of loan disbursement subject to certification from financing bank.

In case of short-term loans like Kissan Credit Cards, it will be available if the facility has been renewed by the bank during the year and is regular.

Incentives for promotion of JLGs will be available only in cases where prior approval has been taken from Nabard for promotion of JLGs.

Incentive to banks will now be available for using BCs / BFs also in promotion and financing of JLGs. By availing services of BCs / BFs in financing JLGs, the banks can not only increase the credit flow to the targeted population, but also improve their overall asset quality in JLG financing.

RBI has issued detailed guidelines, based on the inputs received from Nabard on financing of JLGs in general.

The members of JLGs will continue to remain members of the SHGs and continue to participate in the activities of SHGs as earlier.

The union budget had proposed bank financing of 5 lakh joint liability groups of landless labourers through Nabard, in the current financial year.

Besides deserving small farmers, marginal farmers, tenant farmers, oral lessees and share croppers banks should look at covering others like micro entrepreneurs and artisans who have not yet been covered by SHGs and they should be provided adequate credit support to help them take up livelihood/ farming activities, RBI said. 

Cluster approach
RBI said banks may undertake efforts to promote and finance JLGs on a cluster basis for agriculture as well as activities allied to agriculture and non-farm activities. This will not only help in training and improved monitoring of these groups, but would also enable these groups to aggregate into producers' groups at a later stage.

Such an approach may help the JLGs to contribute positively to the agricultural value chain and enhance agricultural production and productivity by leveraging on economies of scale.

This approach would be particularly effective in command areas of developed watersheds, tribal area schemes and product based clusters, RBI said.

While banks may have their own assessment techniques for financing JLGs, Nabard has suggested an appraisal tool for use by the financing banks.

For capacity building for financing the JLGs, training of bank officers both at field level and controlling office level, RBI said, banks may leverage on their training establishments for training their staff in JLG financing. Nabard will provide support and organise bank specific programmes for branch level staff as also suitable awareness programmes for its middle level / senior officials.

While keeping the basic concept and approach for financing of JLGs unchanged as per the guidelines circulated earlier by Nabard / IBA to banks, Nabard has come up with a revised approach of financing the JLGs on a mission mode both for farm and non-farm activities, RBI said.

Considering the priorities being attached by government in financing landless farmers' groups through JLG mode of financing, banks may closely monitor the progress regularly at various levels, RBI said.

State-wise targets have already been allocated and progress is to be monitored through state-level banking committees (SLBCs), banks may follow these guidelines for financing of JLGs of 'Bhoomi Heen Kisan' and ensure that the targets assigned to them are achieved during the financial year and progress reports are submitted regularly to Nabard as indicated in the guidelines, it added.