Case Study

Agricultural Finance by Microfinance Institutions: Problems and the Way Forward

How can microfinance institutions succeed in agricultural finance?
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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.

About this Publication

By Mahajan, V. & Ramana, N.