Manila, Dec 11, 2006 AEST (ABN Newswire) - Asian Development Bank (ASX: ATB) is lending US$1 billion - its biggest ever regular loan - to promote inclusive growth and help improve the quality of life of India's rural poor through the provision of affordable financial services.
The program will address the problems faced by farmers by undertaking a comprehensive reform of the cooperative credit structure.
"The weaknesses of the cooperative credit structure have immense adverse economic, social, and political impacts on the rural sector," says Kunio Senga, Director General of ADB's South Asia Department.
"Its reform is critical to rural transformation because it has an all-India membership base of 135 million and has links to the broader cooperative movement comprising processing, marketing, input distribution, dairy, and weaving." The agriculture sector, upon which two-thirds of India's people depend, is on a long-term declining growth trend.
The project will tackle a major factor behind the sector's declining growth: limited access to credit for the farmers. To be carried out in five states - Andhra Pradesh, Madhya Pradesh, Maharashtra, Rajasthan, and either Gujarat or Orissa - the program will revitalize the cooperative credit structure, part of the mostly state-run rural finance system, to more effectively reach out to the masses of small farmers.
"If the Government's poverty reduction goals are to be realized, the widening of the vast inequalities between rural and urban areas has to be arrested and reversed," Mr. Senga adds. "Actions that promote broad-based agricultural growth offer enormous opportunities for reducing rural poverty by expanding on- and off-farm employment."
Established by the Government in 1904, the credit structure has evolved into one of the largest rural finance systems in the world, underpinning the broader cooperative movement in India.
However, urgent reforms are needed to remove the deep-seated obstacles to improving efficiency and affordability. The credit structure suffers from poor governance, weak portfolio management, and recurring losses.
The Rural Cooperative Credit Restructuring and Development Program will significantly enhance the legal, regulatory, and governance framework to ensure members control over the cooperative credit structure and facilitate effective enforcement of prudential norms.
A Department of Cooperative Revitalization and Reform has been established at the National Bank for Agriculture and Rural Development to support the reforms, and a National Implementation and Monitoring Committee has been constituted to oversee the process. State-level and district-level implementation committees are being established.
ADB's loan comes from its ordinary capital resources and carries a 15-year term, including a grace period of 3 years. Interest will be determined based on ADB's LIBOR-based lending facility.
The German Bank for Reconstruction and Development, which has worked with ADB in designing the project, will provide parallel financing in the amount of Euro140 million.
The Government of the United Kingdom, through the Department for International Development, will provide a $2 million grant for technical assistance for performance monitoring, capacity building in local implementation units, and introducing innovative schemes to improve credit outreach to poor rural women.
The Banking Division of the Ministry of Finance is the executing agency for the project, which will be carried out over three years.
Contact
Graham Dwyer
Email: gdwyer@adb.org
Tel:+632 632 5253;
Mobile: +63 920 938-6487
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