Context: Central Government launched a Credit Guarantee Scheme which provides a corpus of Rs 1,000-crore for post-harvest finance availed by farmers against electronic negotiable warehouse receipts (e-NWRs).
Relevance of the topic:
Prelims: Salient Features of the scheme; Electronic-Negotiable Warehouse Receipt (e-NWR).
Mains: Benefits of the scheme
What are Credit Guarantee Schemes?
- Credit Guarantee refers to a situation where the loan to the applicant is backed by a party without the need for any external collateral or third-party guarantee.
- Here, the loan sanctioned by the member lending institution is backed by the scheme which provides the guarantee cover for a large portion of the loan amount.
Electronic-Negotiable Warehouse Receipts (e-NWR):
- The negotiable warehouse receipt (NWR) system, launched in 2011, allows transfer of ownership of a commodity stored in a warehouse without having to deliver it physically.
- An e-NWR is available only in electronic form. These receipts are issued in negotiable form, making them eligible as collateral.
- Warehousing Development and Regulatory Authority (WDRA) regulates the entire operation under NWR.
About Credit Guarantee Scheme for e-NWR based Pledge Financing:
- Objective: To help farmers easily access post-harvest loans by leveraging electronic warehouse receipts.
- Total Corpus: Rs. 1000 Crores
- Coverage: Loans up to Rs. 75 lakhs for agricultural purpose; up to Rs. 200 Lakhs for non-agricultural purpose.
- Eligible Institutions: All scheduled banks and all cooperative banks.
- Eligible Borrowers: Small and Marginal Farmers, Women, SC/ST/PwD Farmers, other farmers, MSMEs, Traders, FPOs and Farmer cooperatives.
- Risks covered: Credit and warehouseman risks.
- Guarantee coverage:
- 85% for loans up to Rs. 3 Lakhs.
- 80% for loan between Rs. 3 to 75 lakhs for small and marginal farmers/ women/ SC/ ST/ PwD
- 75% for other borrowers.
Benefits of the Scheme:
- Increase post-harvest lending: Currently, post-harvest lending stands at Rs. 40,000 crore out of total agricultural lending of Rs 21 lakh. Lending against e-NWRs is just Rs 4000 crore.
- Improved Trust for Banks: It addresses the default arising out of both Credit risk and Warehouseman risk.
- Access to Vulnerable Section: The scheme majorly focuses on Small and Marginal Farmers, Women, SC, ST and Divyangjan (PwD) farmers with a minimal guarantee fee.
- Avoid distress selling by farmers: Currently, farmers are compelled to sell their produce even if the price crashes, to get money to invest in the next cycle of crops. As this scheme takes off, farmers can submit their produce and get issued e-NWRs which will act as collateral for banks to issue required loans. Farmers can sell their produce when the price goes up.