CREDIT REQUIREMENT FOR RURAL NON FARM SECTOR AND MICRO ENTERPRISE

Introduction

The term non-farm encompasses all the non-crop agricultural 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 non- farm sector employment is defined as any form of employment other than farm employment in the type of wage, self, or unpaid family labor.

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 failure Lack of information on market demand; Middlemen often seen as exploiters while their potential as sources of market information overlooked

Other important constraints

A. Infrastructure constraints Lack of power/water supply/roads B. Skills Skills base often inadequate to develop potential new subsectors Lack of adequate or appropriate training opportunities to address the skill shortage Strategies/Approaches: Start with a detailed analysis of markets; Disaggregate these to identify potential growth engines in specific areas; Disaggregate again to identify those sectors that provide a combination of: o Economic growth; o Employment opportunities; o Poverty reduction (i.e. providing employment opportunities for the poor).

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.

Constraints of Micro- enterprises in Rural Areas

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 brand equity to enter niche market. Absence of clear-cut government policies.

Credit Needs for Micro-enterprises

There are over 150,000 credit retail outlets of commercial 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.

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

The micro credit summit, Washington (February 1997)

Declarations: Build institutional capacity to reach very poor people in developing countries by strengthening existing institutions preparing new practioners through training programmes and promoting appropriate policy, legal and regulatory changes. Similar measures to reach the very poor in industrialized countries and economies in transition. Institution should develop an Institutional action plan outlining how they could contribute to the goal of the micro credit summit. Enlist others in the campaign to meet the goal of the summit, promote a learning agenda, and encourage institutional action plans. Work with the media to expand awareness, fuel implementation and enlist new participants in the campaign

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 working capital . Thus ,venture capital for the rural non-farm sector is generally financed from own resources and supplemented by loans from friends and relatives.

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 instead arranges 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 second party is called a debtor, also known as a borrower.

Karmakar K.G., 2003, Rural Credit And Self-Help Groups, Sage publication, New Delhi. http://www.nabard.org/nonfarm_sector/index.asp www.mha.nic.in

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