MICROCAPITAL STORY: India's NABARD Announces New Strategy to Apparently Further Complicate Its Conflict of Interest in Microfinance

India’s National Bank for Agriculture and Rural Development (NABARD) has proposed a new, multi faceted strategy to reposition itself as the economy changes, it was reported in the Financial Express. The changes include setting up a direct financing subsidiary for microfinance, separating NABARD Consultancy (NABCONS) into an independent subsidiary and creating an independent supervisory board over cooperative banks, among other, more general changes. The reason for these changes was cited as responding to “the changing economic scenario”.

The first change mentioned, setting up a direct financing subsidiary for microfinance, would be for the purpose of “cashing in” on opportunities in the rapidly growing microfinance business in India; NABARD sources reported to the Financial Express that ground level credit flow is expected to grow from Rs 1.96 trillion (USD 41 billion) in 2008 to Rs 11.17 trillion (USD 235 billion) by 2018. The direct financing subsidiary would be used for area-based projects through creating or taking over a branch network. The details of how this will be implemented were not reported, nor were the details of the other attributes of the new strategy mentioned in the article.

These changes stem from NABARD’s belief that its ability to influence the direction of rural credit is becoming marginalized. NABARD currently acts as a regulator of MFIs in India through the Microfinance Development Council (MDC) and is also the largest lender to Self-Help Groups (SHG) which has raised ethical concerns in the past and is discussed in past MicroCapital stories listed below. How NABARD’s role as a regulator will impact or be impacted by these potential changes was not reported, nor was the source of the information within NABARD named. The details on how these proposed projects and initiatives were not disclosed in the Financial Express report and NABARD has not discussed this news on its website.

This report comes one day after India’s Finance Minister announced special actions must be undertaken to enhance credit flow to agriculture. Public sector banks and regional rural banks have only met 33.95 percent of the annual target for lending to farmers, where this time last year 44.9 percent of the annual target had been met. The Department of Financial Services have issued instructions to NABARD and other banks to expedite agriculture credit flow. Whether the above mentioned changes NABARD is reportedly making are in anyway a response to these instructions or this situation was not reported.

The National Bank for Agriculture and Rural Development (NABARD) was founded in 1982 as part of a government mandate to facilitate credit flow for promotion and development of agriculture, small-scale industries and rural crafts. As of March 2006, 33 million individuals have been linked to microcredit through this program. NABARD reported total assets of Rs 812.5 billion (USD 17.4 billion) and return on assets of 5.86 percent, as calculated from its 2007 financial statements (p.3). NABARD launched a non-banking financial company in 2007 called NABARD Financial Services in order to address challenges in the Indian microfinance industry. More can be read on this topic in this MicroCapital Story. MicroCapital has also covered its partnership with India Post and its research in Sri Lanka.

By Lori Curtis, Research Assistant

Additional Sources:

The Business Standard: “FinMin calls for more agri credit flow“

The Economic Times: “Microfinance bill puts Nabard in regulatory seat“

The Financial Express: “NABARD to adapt itself to changing economy“

MicroCapital Story: “India Post and NABARD Partner to Disburse Microcredit Throughout India“

MicroCapital Story: ” Indian Government Agency NABARD (National bank of Rural Development) Sponsors Trip by Indian Banking Representatives to Observe Microfinance in Sri Lanka“

MicroCapital Story: “India’s National Bank for Agriculture and Rural Development (NABARD) Creates New Initiative to Target Microfinance“

MicroCapital Story: “Indian Politician Sharad Joshi Questions Track Record of NABARD and Microfinance in General“

MicroCapital Story: “Is Anyone Home? India Looks to Bring Bureaucracy and Conflict of Interest to Microfinance by Putting the National Bank for Rural and Agricultural Development in Charge of Microfinance Regulation“

National Bank for Agriculture and Rural Development: “Home” “Annual Report“