Agricultural Finance by Microfinance Institutions: Problems and the Way Forward

This paper discusses agricultural finance in India - its various features and the challenges that it faces. It begins by discussing:

• The contribution of agriculture to the country's income;
• The dependence of rural India on agriculture;
• Types of agricultural finance;
• The Government's efforts to provide financial services to rural families;
• The risks inherent in financing agriculture;
• The problems that MFIs face in the area of agricultural finance.

The paper goes on to discuss:

• BASIX's experience in agricultural lending - its strategies of:
  • Developing suitable financial products and distribution channels for extending agricultural loans to farmers;
  • Lending through Joint Liability Groups (JLGs);
  • Lending through intermediaries such as commission agents, input dealers and seed production organizers;
  • Lending in collaboration with agri-business companies.
• BASIX's new initiatives, such as:
  • Crop insurance;
  • Mitigating price risk;
  • Agricultural/Business development services;
  • Institutional development services.

The paper concludes that for MFIs to succeed in the area of agricultural finance, they need to:

• Get into financing agriculture in a bigger way;
• Experiment and innovate with products, services and methods;
• Adopt a credit plus approach;
• Learn to enhance the farmers' capacity to get a better price for their produce.