National Consultation over Strategic Partnership of Convening and Convincing for Strengthening FPOs - Need for enabling Access to Finance and Policy Support

12th & 13th September, 2019 | New Delhi

The agrarian economy of India is driven by 70 percent of the 1.32 billion population. The agriculture sector has gained significant focus from the government in the past decade. There are several institutional mechanisms which aim to help farmers reap benefits of economies of scale via aggregation like farmer cooperatives, farmers clubs, farmer interest groups, etc. Farmer Producer Organisations (FPOs) are one such farmers’ aggregate. It is the lynchpin strategy for Doubling Farmer’s Income by 2022.

Even though the policy push has been on increasing the number of FPOs, which have crossed the 3500 mark, the spread is skewed with 60 percent FPOs being concentrated in the northern and southern region while the eastern region has the lowest concentration. In addition, only a small percentage of FPOs have been able to truly access the resources required to become robust entities with the state-led support and facilitating/promoting institutions.

With credit being the most important aspect of any business activity, the lack of it havocs a major hurdle in progress of FPOs. The focus of the consultation is collaborate and synthesis best practices across the country in enabling access to finance for FPOs.

The objective of the consultation is to identify the gaps in the existing policies pertaining to Farmer producer’s organizations, and increased understanding of the critical challenges that are limiting the mainstreaming and scaling of FPOs. It aims to identify the road map to address the prevailing challenges by policy makers, financing institutions, academic institutions and practitioners.

In this backdrop, a two day consultation is being held on 12th & 13th September, 2019 in New Delhi in collaboration with Civic Engagement Alliance (CEA), NAFPO and SRIJAN to identify constraints and key building blocks of an effective support to build a strong ecosystem for FPOs to thrive. The discussion will focus on deliberating sources to access finance for FPOs and bring best practices on one platform to develop policy recommendations for State guidelines in Assam.

The participants of the consultation will include representatives from State Government bodies- Agriculture department, Horticulture department, NABARD, SFAC, FPO representatives, financial institutions, promoting organisations along with experts and practitioners.

S. No. Recommendation Rationale
1 Incubation funds that can include some limited startup financial assistance for new FPOs or those FPOs that are in their initial stages can be formed by the State Government. This can be complimented with a Credit Guarantee fund so that some credit history can be generated for the FPOs so that the mainstream financial agencies can consider them for financial assistance through loans. FPOs that are initiated do not have enough credibility and assets due to which the mainstream banks and financial agencies do not feel comfortable in lending. The Credit Guarantee fund can provide a coverage for the risk associated with lending to an FPO that might incur losses and the money invested could be recovered through it. Also the incubation fund can guarantee technical assistance for supporting the FPO in its infancy stage.
2 Mainstream financial agencies should move towards a system in which the financial assistance can be provided based upon cash flows instead of collateral based lending. FPOs are meant to be formed by collectivizing small and marginal farmers. Such a collective cannot be expected to possess any assets that can be put as collateral right in the beginning.
3 Universal credit rating tools for grading the FPOs that can be used by all mainstream financial agencies for assessing the application by the FPOs. There is no uniformity in the methods adopted by the financial agencies to provide financial assistance to the FPOs A universal credit rating tool can help them in evaluating the application of an FPO. Also the FPOs will have understanding on what are the indictors they need to work upon in order to strengthen themselves and seek financial assistance.
4 Post formation nurturing policies for transformation of the FPO into a stronger business entity. The FPO promoting institutions should have their capacities enhanced for FPO governance and management and what should be the role of FPOs. The time period of 3 years may be extended to 5 years. The FPOs mostly get a window of 3 yrs. for promotion and nurturing by NABARD which is too short. There are no substantial guidelines on the nurturing of FPO promotion after its formation and also the FPO promoting agencies lack the basic know how on it.
5 Priority sector lending should be extended to the FPOs. Creation of assets and infrastructure through the funds of priority sector lending as well as from RIDF (Rural Infrastructure Development Fund) can be done for the FPOs that will help them as a leverage for accessing finance for the FPOs. The funds mandated by banks for priority sector lending are often unutilized due to several reasons and are diverted to NABARD's Rural Infrastructure Development Fund where it is again unutilized. This fund can be mandated for building assets that can be used for the FPOs based upon which banks can lend to them.

Market risk fund can be created. Each state may setup Rs. 10 Crore as a credit guarantee fund or FLDG that can be further multiplied. A one-time grant can be provided through this fund as a collateral against the loans offered to FPOs by the banks. Credit guarantee should also be extended to NBFCs that offer financial assistance to FPOs.

e-NAM should be introduced in the state for better trading exchange and management of market.

This particular fund can cover the risks involved in the Markets. The price volatility, supply and demand, seasonality, uncertainty of production and monetary losses associated with all such issues can be covered through this fund.

Suitable provisions to be enacted by State Govt in their APMC (Agricultural Produce Market Committee) Act for promotion of e-trading by State Agriculture Marketing Board. As such no initiatives have been taken on this area by the State Government.

7 Strengthening of the Farmer Interest Groups (FIG).These FIGs can act not only as the manufacturing groups but also help in leveraging finance available through the credit and savings activity of these groups including the activities through bank linkage. FPOs can also access the funds available at the grass root level through equity investment. Many government schemes provide financial assistance to collectives like SHGs. Similar status can be provided to Farmer Interest Groups (FIGs) also so that they are able to mobilize these untouched funds available and also carry out the operations of the FPOs in a concentrated manner.
8 Policy focus on ease of doing business for FPOs. It should focus on encouraging a culture of enterprise and start-ups through some policy initiatives. FPOs are yet to be treated at par with start-ups and similar assistance and norms should apply to them also. IT should be targeted to be developed into a business entity.
9 Membership of minimum 500 and maximum 1000 should be made flexible according to the area context. The membership of 500 farmers for availing credit guarantee funds is also too high in case of heavily forested areas and hilly regions where population density is too low to mobilize these many farmers into the FPO.
10 Private sector should be also linked to FPOs. CSR should be made eligible for investing into the FPOs. A certain percentage of the CSR profit can be set aside for investment into the FPOs. State level organizations including the PSUs can also be roped in similarly. Private sector has huge amount of funds that can be routed towards the betterment of FPOs. CSR funds are not eligible to be treated as investments in an FPO. With this fund it can be an investment for both the private sector as well as the FPO and it can help the FPO generate a credit history that will facilitate financial assistance through mainstream financial agencies.

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