Getting the Problem Right

In terms of the age-old problem of helping farmers increase their productivity and income, I don’t think agricultural credit and finance are the right problems to focus on.  I make this statement cautiously--but based on the observations of an on-going CMF study in 4 states, farmers (small, medium, and large) are able to access crop-loans through banks or co-operatives with relative ease. The penetration and coverage of such formal credit sources is quite high based on district-level data. Loan appropriateness is also not necessarily the issue. Amounts for crop-loans are fixed by a technical committee through a ‘scale-of-finance’ framework, based on i) amount of land owned by the farmer and ii) the type of crop grown. Loans are also released on a timely basis

So why does the debate around helping farmers always focus on credit? Even with access to credit, the small farmer still suffers from an absolute income deficit where he cannot compensate for major expenses, risks undertaken, or regular household expenditures incurred throughout the year. Crop-loans are sometimes diverted for consumption purposes, and informal loans become necessary to repay these loans or absorb other household and farm costs.

A debate focused on credit also encourages policies targeting credit. A reduction in loan interest is not sufficient for a farmer to expand his area of cultivation or invest better in his crop for a more secure income. And a loan waiver may temporarily relieve a farmer after a bad crop but does not make up for the investments already made.

As one farmer explained, 'It’s simple--if we got a good price for the money and labor we put in, then everything would be fine and people wouldn’t be leaving  for other jobs’ Are credit schemes and financial instruments the best way to improve an unprofitable sector? Or is it a superficial and easier fix to the problem, compared to the alternatives? 

Financial services are definitely essential but there is a disproportionate amount of attention and resources devoted to this area. Other initiatives looking at improving farmer yields and incomes are saturated with buzz words: adoption of technology, value addition, market linkages, etc. For example, better techniques of spacing, input application, and water-management  have been documented to raise yields up to 30% at minimal cost. A combination of access to storage facilities and collective bargaining has been documented to double the net income for a small farmer.

However, it is difficult to generalize these results. I’m not sure there is a clear understanding of these terms- what has an impact, for which type of crop, for which type of farmer, in which area, and in which market environment. These are all much harder questions to answer, but I think they’re more worthwhile to ask to help farmers in the long-term.

Going to the Roots - Budget 2013's focus on Agriculture

While going through the recent Budget 2013 session described vividly across various media sections, it would be safe in saying that it has not raised any major controversy or questions to some extent, though experts are still going through the same and are giving out their expert opinion on the same. I am writing this post to highlight what are the facets of this Budget with respect to agriculture. 

Image Courtesy: Deepti Kc, Location: Chattisgarh 

Like most countries in the developing world, experts and economists may be of the opinion of that an economy must transition from being an agriculture driven one to that of a manufacturing driven one. I believe India is a far way from saying that we have reached such a stage. We still have to pay undivided attention to the sector as 580 million Indians still depend on agriculture. Some of the key points of the recent Budget with respect to agriculture are as follows:-

• Allocation of Rs27,049 crore to the Ministry of Agriculture, an increase of 22 percent over the revised estimates of the current year. Of which, Rs 3,415 crore has been earmarked for agriculture research
• Agricultural credit has been enhanced to 7 lakh crore rupees
• Rs 150 crore will be invested in Farmer Producer Organizations so as to assist small and marginal farmers
• Rs 1,000 crore to be allocated for farmers in East India - adoption of hybrid rice varieties
• Setting up of Indian Institute of Agricultural Biotechnology at Ranchi, Jharkhand
• Investments of Rs 9,954 crore in the Rashtriya Krishi Vikar Yojna and Rs 2,250 crore in the National Food Security Mission
• The original states of the Green Revolution are currently facing a problem stemming from over-exploitation of water resources. Given that certain areas of the country are experiencing drought, the Government is planning on better watershed management. The allocation for an integrated watershed programme has been raised from an existing Rs 3,050 crore to Rs Rs 5,387 crore
• The National Livestock Mission will be launched in 2013-14 to attract investment and to enhance productivity taking into account local agro-climatic conditions. Rs 307 crore will be provided for this
• Pilot programmes on Nutri-Farms will be conducted to introduce new crop varieties. A sum of Rs 200 crore has been allocated for this agri-businesses and farmers work together and also help in curbing problems rising from malnutrition  

It sure does look positive from the offset and very optimistic. States like Assam, Bihar, Chattisgarh and West  Bengal have increased their contribution to rice production. The recent article on how a Bihar farmer produced a yield of 22.4 tonnes of rice from a hectare has caught global attention for sure. However, there are still claims on whether its veracity holds true or not. I have posted two links about this story below: does make interesting reading. One could be pessimistic looking at the Government's track record with respect to implementing such grand schemes. However, I wish for the sake of the Indian farmers, that these prgrammes actually deliver what they have set to deliver. Their well-being is important and we must look at the same with utmost importance.

Source and External Links: Economic Times , FirstPost , Bihar farmer feat , Critics of the Bihar feat

A day in the life of a tribal village market (Haat)...!

I am quite sure most of you have seen or know of a village haat or bazaar. Ever wonder what exactly happens out there?

(In case if you are not aware of what a village haat is-  as most interior villages of rural India do not have proper linkage to the market, many Indian villages – especially the ones that are well connected with small cities- host a business center, which is open only once a week in Government owned lands)

This particular haat is hosted in one of the developed villages of Bastar district of Chattisgarh, which is around 30 km away from a small town- Jagdalpur. Localities mentioned that 1000s of visitors  from around 40-50 interior villages within a radius of 40 km visit this haat every week to purchase or sell all types of goods ranging from daily needs items such as vegetables, salt, sugar, spices, rice to clothes, jewelry, toys etc. 

Do you know that each place is allotted to a particular enterprise?  A local boy told me to bring a stick and place it on any empty space, and that space would be mine.  This man in the picture below (on the right) mentioned that the place was allotted to his family 40 years ago, when his father first occupied that place. He has a clothing business and comes from a city, which is around 30 km away from the place.

Needless to say, bangles are extremely important for Indian women.  One interesting observation was that women buyers did not wear bangles themselves, but the sellers helped them wear the bangles. Interestingly, once the new bangles were put on a woman’s hand, the seller broke the old bangles.

This particular village haat was also a place for me to understand the tribal enterprises.  I learnt that most of the tribal women gather in the market to trade their products and purchase their food supplies for the week. On an average, they pay around Rs 30 per person for transportation. You can see two tribal women paying the vehicle’s owner (pics below) and their items that they have brought to sell.

And check out the following pictures to understand what tribal women generally bring to sell in such haats ranging from food products, vegetables, home-made alcohol to ornaments made by the tribal.

And lots of cash transactions…..!

And last but not the least, the presence of a village sethani “landlord’s wife” really made a difference.

In my opinion, a visit to any haat bazaar of any village gives the glimpse of the social and commercial lifestyle of the people living in that community.  So next time, if you see a village haat or bazaar, try to spend some time just observing. It is quite an experience.

Ingredients of an effective Project Plan

More often than not, despite the importance of this phase or aspect of a project, it tends to be taken lightly – the phase being the planning process while writing a research proposal. In this post, I shall attempt to tell you what exactly goes on or should happen when it comes to planning post acceptance of a proposal.

Once the topic has been accepted by the donor agency, we need to begin the process of refining the topic and turning it into something that is focused enough to guide your study/project. It is important that you establish a research problem at the start of your project. It is one of the key tools you have to ensure that your project keeps going in the right direction.

Every task you undertake should begin with you revisiting your research problem - “Will this help me address this problem?” or “Will this help me to address the research questions?”

A mother's plea to her Government

Dear Government,

My eldest 17-year-old son has lately started talking about going to a big city for a "better" livelihood. He is a very skilled farmer; however, he does not see any future in it. Some say our young boys do well in the city and some say they work 16-17 hours a day as forced laborers without any proper food and place to live. Whatever the situation is, I do not want my boy to leave. We have a piece of land that we can use to cultivate a variety of crops and sustain ourselves in our own village. Unfortunately, due to lack of proper irrigation system and resources, cultivation of crops happens only during monsoon season. What I feed my family that year depends entirely on the rainfall. It is a very risky and unpredictable lifestyle, and thus, most of the young people of our village have migrated to bigger cities for better livelihoods.

 

My family is fortunate as our land is on a low-lying area and the bore well is right next to my land. This way, we are able to grow vegetables throughout the year. Not all families in my village are as privileged as we are. Some families from the higher elevated areas, have to walk 15-30 minutes every day to fetch water.  They are not able to get bore well water as water level is too low. How can such families grow  vegetables in their land when they hardly have water for drinking, cooking and bathing? Thus, our land remains unused during the off-peak seasons. Even if we manage to grow vegetables, our village does not have proper access to the market. The only way to sell our produce is to go to the nearest weekly farmers market, which is 15 km from our village. A jeep comes in the early morning and takes all of us who want to sell our produce. I usually take my vegetables and occasionally, I take forest products such as wood, tamarind, etc. Since we travel 15 km to reach the market and have to also pay (around Rs 60) for the transportation, we can only carry a limited quantity of produce. I wish the Government would help our village have proper access to the market, that way we could grow more vegetables and sell them daily, resulting in improvement of livelihood of the household.

During non-agriculture seasons, most of us break stones if there is a demand from a private contractor. We are paid Rs. 800 if we are able to fill a tractor with small pieces of stones. It takes a week to fill a tractor if two people work daily for 4-5 hours. Many men in my village cannot break stones anymore because they have become weak due to lack of proper food and increase in their alcohol consumption. Men prefer spending their limited income on alcohol. Worse, young boys are following the trend as well.  I believe that alcohol is the major cause of poverty and domestic violence in our village. I wish the Government would encourage some campaign against alcohol abuse in our village. Decrease in alcohol consumption will increase the household productivity and income, resulting in the gradual improvement of livelihood of the household.    

Once again, I am a privileged woman in my village. I am able to produce vegetables and rice throughout the year when most of my villagers do not have access to water and thus their land is unused most of the time. My young son still helps us in farming when most of the youngsters from other families have migrated. I am able to feed my family with rice, lentils and vegetables when most of the families survive on rice and water. I am able to sell tomatoes and eggplants when most of the women from my village cannot sell anything or sell limited forest produce such as woods and tamarind.  Whatever limited resources we get, we have managed to survive in our villages. Now, my son wants to have a better future and thus, he is planning to leave his village and go to an unknown city. When I am worried about the well being of my boy,  I want my Government to understand the potential of skilled farmers like my son and open opportunities for them so that these youngsters can prosper in their own village.  These youth can be better farmers and produce more crops for the country. At times, I wonder, if my Government understands the consequences of skilled farmers stop growing crops due to lack of opportunities.......who will feed the next generation of this country?

This blog is based on stories collected  from several tribal women of Chhattisgarh. Pictures have been taken by the author and they belong to CMF.

Farm Credit in Pakistan: Benefiting Farmer segments

While reading up on Agricultural Credit, came across this interesting paper on farm credit in Pakistan, our neighbour. What was interesting about this paper is that the provision of farm credit in rural Pakistan actually benefited the small farmers though large farmers were the largest recipients of the program. For the full paper, visit this page: http://elibrary.worldbank.org/content/workingpaper/10.1596/1813-9450-2653

The service provider in this case is Agricultural Development Bank of Pakistan or ADBP. The paper throws light on the role played by an institution like ADBP in providing credit in the rural side. Though substantial, once one looks deeper into the disbursement of loans and loan recovery rates, a lot is left to be desired about the cost-effectiveness of the scheme. 

History of Agricultural Credit in India - Timeline

Development of rural credit systems have always been a complicated affair and this is clear from India's history. Intermittent failure of monsoons, unscientific farming practices and rural indebtedness, seasonal need for credit and other risks has ensured that high interest rates remain a norm rather than an exception with respect to credit. This problem was also noticed by our colonial masters and to this date, providing a formal system of credit seems to be a challenge. What I have done here in this post is an attempt to develop a timeline based on an article I came across online. This will be the first among many posts that I intend to write on agricultural credit and I am open to feedback on the same.

1870 - British administration began to notice the problems in Indian agriculture

1904 - Cooperative Societies Act àCooperatives seen as premier institutions for disbursing agri-credit.

1912 - Continuous official attention à provision of rural credit. New Act passed in 1912 à gave legal recognition to credit societies

1915 - Maclagan Committee - advocated establishment of provincial coop banks - by 1930 all provinces had them à Rise of 3-tier cooperative credit structure

1926-27 - Royal Commission on Agriculture further examined rural credit

MFIs: Creating Slaves to Microfinance or Becoming the Saviors?

Author: Surabhi Agrawal

With an even-fisted force in the air, he yells, “We are not a slave to your microfinance!” and storms off to the back of the house, leaving twenty-three clients, one collection officer, and two surveyors in a small room shyly looking at each other. The group leader, the wife of the angry gentlemen who believed we had invaded his house, stated that her husband was frustrated with the weekly meetings held by the Microfinance Institution (MFI). “He feels our work is disrupted weekly because we have to gather for the meeting.”

If we leave the story here, then this will become another example to be cataloged in the literature of how capitalist are imposing their microfinance, making clients ‘slaves’ in debt with various imposing conditions. But a different chord will be struck as you enter another household for a collection meeting and a woman begins to show case her new sewing machine along with a sample of household handicraft items she has made. “I learned how to design these at a workshop held four months ago at the branch office.” With a shining face, she shows the repairs she made to a window in the house from the profits.    

These scenarios, as nerving or heart-warming, take us to the original debate – “Does microfinance perpetuate women in a cycle of debt or does it help lift women out of poverty?” Much research has been conducted on this topic, with ardent supporters of both schools. CMF-IFMR has undertaken a study in partnership with Columbia University Business School where we are approaching this topic with a different angle: What are the sources and best management practices for high productivity for MFIs? Along with the financial services, if the MFI provides any social services, then what are the performance outcomes?

The study is being conducted across six states in India (Uttar Pradesh, Madya Pradesh, West Bengal, Maharashtra  Tamil Nadu and Kerala) with 19 partner MFI organizations. Through surveys, fieldwork observations, and focus-group discussions, we are understanding the perspectives of branch managers, loan officer, and clients. We are also interviewing senior management in operations and human resources, along with collecting particular branch level financial data for the past two years. Yes, we are covering all four corners of the country. Yes, we are working with a large segment of the sector, some of which started as grassroots NGOs and some which are the largest players in the industry. And yes, we are compiling a very large and detailed database, a unique undertaking at such a critical time for the industry.  

So how are management practices going to answer the original question? Mandatory attendance policy? Weekly meetings? Socially-geared workshop? These are all elements of the management policies and practices the MFI has put into place. For example, how does the recollection frequency structure effect repayment rates? How effective are social program in terms of client retention, repayments, and capacity-building? As fieldwork has completed, questions like these and many more will soon be analysed, providing critical insights to the industry at a moment when the RBI is devising new policies and legislature is debating where to place this sector in the complex world of finance.

So before we jump to any conclusions, we should rethink the question, what exactly determines the successes and failures of microfinance? 

Women gathered for MFI Meeting (Photo courtesy of Pramod Tiwari)

Why do farmers need more loans?

Agriculture finance is the most crucial aspect for any farmer in a country where 60% of population depends on farming. India is also one of the largest producer of food grains and cash crops as well as the largest consumer of them.  But there are still so many underlying problems in this sector which directly affects the farmer’s ability to earn to his full potential. If we see there are different issues like seed procurement, water management, floods, loss of monsoon, low price for farming produce, high wages, unavailability of labor, transportation of food grains, conversion of land for industries and housing needs, farmers children not interested to take up farming, migration to urban areas, etc..  and problems like disputes between states which do not want to share water to its neighbors. Finance plays a vital role in each aspect, as with availability of finance alternative solutions could be found that would help the farmers not to take adverse decisions.

If we look at the situation of farmers today in rural areas, many of them are not interested in the farming   activity. Some do it because this is all what they know and some do it as they haven’t found another alternative. Most of the children of the farmers are turning into engineers or do other subjects to get jobs into other sectors except agriculture. If you would ask a farmer what will happen to your land after your death, he would say my children will sell it and share the money.

If this is the case what’s happening at the ground level ? Isn’t government giving enough subsidies to boost the farmers and discounted interest rates for the loans to ease the situation. Yes there is availability of finance for farmers when they can get a loan for 0% from the cooperative banks, a discounted 7 to 9% interest on agri loans and also subsidies for loans taken for modernization like installation of drip irrigation, and top it all the electricity is still fully free for the irrigation(Don’t ask me when there is electricity, in some areas it seems they come like lightning!!!). So what is going wrong , why are farmers not able to meet ends still? Why do they still not encourage their younger generations to do farming?  

So there are a list of questions that has to be looked upon:

1.    Is the finance reaching the farmers who deserve it at the right time?

2.    Is the access to financial institutions still a problem?  

3.    Does the low interest rates or subsidies sync with the earnings of farmers(Profitable) from agriculture.

4.    Why do farmers need more loans if the government is providing so many other options?

These are some of my observations with personnel conversations with farmers and also my family doing involved in agriculture. In the next write blog I would like to bring to you different and interesting information on types of informal lending that are available in rural areas and how much effect it has to the farmers financial needs.

Data Everywhere and Nowhere to Go

The current GIZ-NABARD-CMF study is being conducted in 4 states (Tamil Nadu, Maharashtra, Punjab, and West Bengal). The study explores general and policy-specific questions regarding agricultural financing in India.

Broader research questions in the study look at the structure of crop-loans across regional rural banks (RRBs), co-operative banks, and commercial banks;the credit need of the farmer and the utilization of the crop loan; and the respective yields and net income in proportion to the credit

Policy-specific research questions look at the central government’s 2008 debt relief policy (loan waivers to mostly small and marginal farmers) and the 2006 interest subvention policy, which reduced the farmer interest on a crop-loan from a market rate of ~9% to an effective rate of 4%; this was followed by a state subsidy policy that further reduced the interest rate to 0% for farmers borrowing from co-operative societies. Banks are subsidized by the state and central government to retain the original market rate interest.