To support farmers who organise themselves under producer organisations, the National Bank for Agriculture and Rural Development (Nabard) is considering setting up a wholly-owned non-banking finance company (NBFC).

This move is aimed at complementing the efforts of the apex development bank to form and scale up farmer producer organisations (FPOs) under the aegis of the Producers Organisation Development Fund (PODF), which was set up in 2011.

Pointing to the trend of declining landholding per farm household due to rising population, Harsh Kumar Bhanwala, Chairman and Managing Director of Nabard, said it is important for small and marginal farmers to join forces under FPOs to get access to latest farm technology, inputs and services, and realise better value through aggregation and sale of their produce.

“We are considering setting up an NBFC to support and finance producer organisations. Our board has had one round of discussion on this,” said Bhanwala.

Initially, Nabard, which facilitates credit flow for promotion and development of segments such as agriculture, small-scale industries, cottage and village industries, will start the NBFC as a wholly-owned venture. Later, it will rope in banks as equity partners.

Bhanwala said the proposed NBFC could have a seeding effect, encouraging other NBFCs to extend timely credit to producer organisations.

India has over 12.5 crore farmer households, of which, over 85 per cent are small and marginal farmers with landholdings of less than two hectares. FPOs are important in the context of declining landholdings.

The 2014-15 Union Budget has proposed to supplement Nabard’s PODF with a sum of ₹200 crore which will be utilised for building 2,000 producer organisations across the country over the next two years. So far Nabard has financed 91 producer organisations to the tune of ₹236 crore.

Smaller landholdings

“In the 1970s, the average size of landholding was 2.70 hectares. Now it is 1.16 hectares. This will further decline…With landholdings getting fragmented, the production at the individual level is going to be small.

“The farmer will find it difficult to establish linkages with the market and get a remunerative price for his produce due to the small quantity. So, farmers have to mobilise into groups at the village level to share resources and business activities,” said the Nabard chief.

Meanwhile, Nabard has signed a Memorandum of Understanding with Small Farmers’ Agri-business Consortium (a society promoted by the Department of Agriculture and Cooperation) to jointly work for the development of producer organisations.

According to the Department of Agriculture and Cooperation, the primary objective of mobilising farmers into member-owned FPOs is to enhance farm productivity through agricultural best practices; ensure access to high quality inputs like seeds and fertilisers and output market access as well as negotiation power.

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