Financing of FPO’s
Farmer Producer Organisations(FPOs)/Producer Collective
India has about 12.5 crore farmer households of which over 85% are small and marginal farmers with land holdings of less than 2 hectares. The average size of land holding is 1.33 hectare/ farmer household. Due to this fragmentation and disorganization, farmers face constraints such as procuring inputs like seeds and fertilizers at reasonable prices, lack bargaining power in the market, realizing better value for their produce, access to technology, etc. As a result majority of the small producers are unable to realize optimal value from their farming operations and make economic progress. On the other hand, in case of non-farm sector activities, the problems relate more to the quality of the product and marketability. Design and innovation along with aggregation of the produce are also key problem areas.
It is felt, by organising themselves collectively, producers can utilize scale to procure inputs at a lower price, and gain more selling power for their produce/product. Forming a producer organization can provide a strong platform to take up collective business activities, build capacity and provide linkages to markets. Various policy level initiatives are being taken by Government aimed at promoting the concept of producer organizations. Some of them include, having a dedicated source of funding to FPOs from the Rashtriya Krishi Vikas Yojana (RKVY), Equity Grant and Credit Guarantee Fund Scheme by Small Farmers Agribusiness Consortium (SFAC) for Farmer Producer Companies, setting up of Producers Organizations Development Fund (PODF) in NABARD and PRODUCE fund of Government of India etc.
To ensure sustainability and economic viability of FPOs/POs, their nurturing plays an important role in taking up viable business activities like aggregation of produce, collective marketing, bulk procurement of inputs, primary processing, etc. To meet the credit requirements of FPOs/POs in various stages of their life viz. Initial phase, Growing phase, and Maturity phase, the loan products mentioned below have been introduced.
- Loan Products with availability of Collateral/Guarantee Cover
- Loans to POs/FPOs that are eligible for assistance from SFAC towards equity/credit guarantee cover.
- Loans to FPOs and other POs that are not eligible for assistance from SFAC towards equity/credit guarantee cover and offering collaterals.
- Loans to Promoting Institutions, for on lending to POs.
- Loans to POs that are not in position to provide collaterals.
- Loans to start up FPOs/POs with small size of business activities.
The items eligible for assistance broadly include capital cost such as cost of building, machinery and equipment for processing, specially designed vehicles for transportation etc. and / or working capital requirements for input supply, procurement, collective marketing, and other recurring costs connected with the project.