financing insitute rbi nabard adb imf world bank insurance and credit gurantee

LECTURE – 6
AN INTRODUCTION TO HIGHER
FINANCING INSTITUTIONS – RBI,
NABARD, ADB, IMF, WORLD BANK,
INSURANCE AND CREDIT GUARANTEE
CORPORATION OF INDIA

Reserve Bank of India (RBI)
¨ The Reserve Bank of India (RBI) was established in
1935 under the Reserve Bank of India Act, 1934. Its
headquarters is located at Mumbai. The RBI was set up
to:
¤ regulate the issue of bank notes
¤ secure monetary stability in the country
¤ operate currency and credit system to its advantage
¨ The role of RBI in agricultural credit was found in the
establishment of Agricultural Credit Department (ACD).

¨ The primary functions of Agricultural Credit Department (ACD) are:
¨ To coordinate the functions of RBI with other banks and state cooperative
banks in respect of agricultural credit
¨ To maintain expert staff to study all the questions of agril. credit and be
available for consultation by central, state governments, scheduled
commercial banks and state cooperative banks.
¨ To provide legislations to check private money lending and checking other
malpractices.
¨ All India Rural Credit Survey Committee (AIRCSC) under the chairmanship
of Sri. Gorwala in 1954 suggested several recommendations related to
rural credit. Based on this, two funds were established after amending RBI
act, 1934.

1.0 National Agricultural credit (Long-
term operations) fund-1955
¨ It has started with an initial capital of Rs.10 crores and
annual contribution of Rs.5 crore and later this was
increased to Rs. 15 crore.
¨ This fund was meant to provide long–term loans to
various state governments so as to enable them to
contribute to the share capital of different types of
cooperative societies including Land Mortgage Banks
(LMBs).
¨ Loans and advances out of this fund are made to state
governments for a period not exceeding 20 years.

2. National Agricultural credit
(Stabilization fund)-1956
¨ It was started with RBIs initial contribution of Rs. 1 crore
and subsequent annual contribution of Rs. 1 crore.
¨ This fund is utilized for the purpose of granting medium-
term loans to State Co-operative Banks (SCBs),
especially during the times of famines, droughts and
other natural calamities when they are unable to repay
their loans to RBI.
¨ The state and central cooperative banks and PACS in
turn provide a similar facility to the farmer - borrowers
regarding short-term production loans taken for crops
affected by the natural calamities.

Functions of RBI: 1. Provision of Finance
¨ RBI provides necessary finances needed by the farmers
through the commercial banks, cooperative banks and
RRBs on refinance basis.
¨ It advances long-term loans to state governments for
their contribution to the share capital of the cooperative
credit institutions like State Cooperative Banks (SCBs)
and District Cooperative Central Banks (DCCBs).
¨ It advances medium-term loans to State Cooperative
Banks.
¨ It extends refinance facility to the RRBs only to an
extent of 50 per cent of outstanding advances.

2. Promotional activities
¨ Reorganisation of the state and central cooperative banks
on the principle of one apex bank for each state and one
central bank for each district.
¨ Rehabilitation of those central cooperative banks, which are
financially weak due to mounting overdues, insufficiency of
internal finances, untrained staff, poor management etc.
¨ Strengthening of PACS to ensure their financial and
operational viability.
¨ Arranging suitable training programmes for the personnel of
cooperative institutions.

3. Regulatory functions
¨ RBI is concerned with efficiency of channels through which credit is
distributed.
¨ Banking Regulation Act, 1966 makes the RBI to exercise effective
supervision over cooperative banks and commercial banks.
¨ The cooperative banks should get prior authorization from RBI for
providing finances beyond a certain limit.
¨ The cash liquidity ratio (CLR) and cash reserve ratio (CRR) are fixed
by RBI for cooperatives, at lower levels than those fixed for
commercial banks.
¨ For cooperative banks the bank rate was 3% less than that of
commercial banks. They are permitted by RBI to pay 0.5% higher
rate of interest on deposits.

Credit Control
¨ Quantitative or General Credit control: It aims at
regulating the amount of bank advances i.e. to make
banks to lend more or less.
¨ Qualitative or Selective credit control: It aims at diverting
the bank advances into certain channels or to
discourage them from lending for certain purposes.
¨ Credit Rationing: It is nothing but rationing of loans by
non-price means at times of excess demand for credit.
Under variable capital-asset ratio, the RBI fixes a ratio
of capital to the total assets of the commercial banks.

National Bank for Agricultural and Rural
Development (NABARD)
¨ Agricultural Refinance and Development Corporation
(ARDC) had not made an expected dent in the field of
direct financing and delivery of rural credit against the
massive credit demand for rural development.
¨ As a result many committees and commissions were
constituted like,
¤ Banking commission in 1972
¤ National Commission on Agriculture (NCA) in 1976
¤ Committee to Review Arrangements for Institutional Credit in
Agricultural and Rural Development (CRAFICARD) in 1979.

¨ Under the chairmanship of Sri. B. Sivaraman,
committee recommended the setting up of a
national level institution called NABARD for
providing all types of production and investment
credit for agriculture and rural development.
¨ As a result of CRAFICARD’S recommendations
NABARD came into existence on July 12th, 1982.

¨ The then existing national level institutions such as
Agricultural Refinance and Development Corporation
(ARDC), Agricultural Credit Department (ACD) and
Rural Planning and Credit Cell (RPCC) of RBI were
merged with NABARD with a share capital of Rs.500
crore equally contributed by Government of India and
RBI.
¨ NABARD operates through its head office at Mumbai
and 17 regional offices-one each in major states, 10
sub-offices in smaller states / U.Ts and 213 district
offices.

Board of Management
¨ Central Government in consultation with RBI appoints all the
directors in the “Board of Management “along with the chairman
and the managing director (MD).
¨ The M.D. is the chief executive officer (C.E.O) of NABARD and he is
primarily responsible for the various operations of the bank.
¨ Apart from M.D and Chairman, the Board of Management consists
of 13 other directors. Out of these:
¤ 2 are experts in rural economics and rural development.
¤ 3 are representatives of cooperatives
¤ 3 are representatives of commercial banks
¤ 3 are the officials of Government of India
¤ 2 officials belong to State Governments

Sources of funds
¨ Authorized share capital of NABARD is Rs. 500
crore and Issued and paid up capital of Rs. 100
crore. Other sources are:
¤ Borrowings from Government of India (GOI) and any
institution approved by GOI
¤ Borrowings from RBI
¤ Deposits from state governments and local authorities
¤ Gifts and grants received

Objectives
¨ As an apex refinancing institution, NABARD survey and
estimates all types of credit needed for the farm sector
and rural development
¨ Taking responsibility of promoting and integrating rural
development activities through refinance.
¨ With the approval of GOI, NABARD also provides
direct credit to any institution or organization or an
individual.
¨ Maintaining close links with RBI for guidance and
assistance in financial matters.
¨ Acting as an effective catalytic agent for rural
development i.e. in formulating appropriate rural
development plans and policies.

Functions of NABARD
a) Credit activities
b) Development activities, and
c) Regulatory activities

a) Credit activities
¨ NABARD prepares for each district a potential linked credit
plan annually and this forms the basis for district credit plan.
¨ It participates in finalization of annual action plan at block,
district and state level.
¨ It monitors the implementation of credit plans.
¨ It frames the terms and conditions to be followed by credit
institutions in financing rural farm and non- farm sectors.
¨ It provides refinance facilities

¨ Refinance is of two types:
¨ Short-term refinance is extended for agricultural
production operations and marketing of crops by
farmers and farmers’ cooperatives and production and
marketing activities of village and cottage industries.
The period of finance is 12 months.
¨ Medium term and long term refinance is extended for
investments in agriculture and allied activities such as
minor irrigation, farm mechanization, dairy, horticulture
and for investment activities of rural artisans, small
scale industries(SSI) etc. Period of finance is 15 years.

b) Development activities
¨ Institutional development: Providing financial
assistance for establishment and development of
institutional financial agencies.
¨ Research and Development Fund: Providing funds
for research and development efforts of institutional
financial agencies.
¨ Agricultural and Rural Enterprises Incubation Fund
(AREIF): For providing assistance while inception of
new enterprises.

¨ Rural Promotion Corpus Fund (RPCF): It is meant to provide financial
assistance for training - cum production centers, rural
entrepreneurship development programmes, and technical
monitoring and evaluation centers.
¨ Credit and Financial Services Fund (CFSF): It aims at providing the
assistance for innovations in rural banking and credit system,
supports institutions for research activities, surveys, meets etc.
¨ Linking SHGs to credit institutions: During the year 1992, NABARD
started the pilot project of linking SHGs to credit institutions. Under
this, it provides 100 per cent refinance to banks for loans extended
to SHGs.

c) Regulatory activities
¨ Under Banking regulation act 1949, NABARD
undertakes the inspection of RRBs and cooperative
banks ( other than PACs).
¨ Any RRB or cooperative bank seeking permission of RBI,
for opening branches needs recommendation of
NABARD.
¨ The state and district central cooperative banks also
need an authorization from NABARD for extending
assistance to units outside the cooperative sector and
non -credit cooperatives for certain purposes beyond
the cut-off limit.

ASIAN DEVELOPMENT BANK (ADB)
¨ ADB is a regional development bank established in the year
1966 to promote economic and social development in Asia
and Pacific countries by providing loans and technical
assistance.
¨
¨ The ADB’s head quarter are located at Manila, Philippines.
¨ It aims at eradication of poverty in the Asia –Pacific region.
¨ It is a multilateral financial institution owned by 67 members,
with 48 members from the region of Asia- pacific and 19
from other parts of globe.

¨ The highest policymaking body of the bank is the Board
of Governors consists of one representative from each
member country.
¨ The Board of Governors, elect among themselves, the
12 member Board of Directors.
¨ Out of these, 8 members from Asia- Pacific members
and rest from non-regional members.
¨ The Board of Governors also elects the bank’s president
who is the chairperson of the Board of Directors and
manages the ADB.

¨ As Japan is the largest share holder of the bank,
traditionally the president has always been from Japan
¨ It plays the following functions for countries in the Asia –
Pacific region:
1. Provides loans and equity investments to its developing
member countries (DMCs).
2. Provides technical assistance for the planning and execution
of development projects, programmes and for advisory
services.
3. Promotes and facilitates investment of public and provide
capital for development.
4. Assists in coordinating developmental policies and plans of its
DMCs.

INTERNATIONAL MONETARY FUND
(IMF)
¨ The International Monetary Fund (IMF) is an
international organization.
¨ At present 185 countries are the members of IMF.
¨ Its headquarters is located at Washington, DC.,
USA.

Origin
¨ After the Second World War, many countries felt
the need to have an organization to get help in
monetary matters between countries.
¨ To begin with, 29 countries discussed the matter,
and signed an agreement.
¨ The agreement was the Articles of Association of
the International Monetary Fund. IMF came in to
being in December 1945.

Membership
¨ Any country can apply to become a member of the IMF.
¨ When a country applies for membership, the IMF’s
Executive Board examines the application.
¨ If found suitable, the Executive Board gives its report to
IMF’s Board of Governors.
¨ After the Board of Governors clears the application,
the country may join the IMF.
¨ However, before joining, the country should fulfill legal
requirements, if any, of its own country.

Functions
¨ Helping in international trade, that is, business
between countries
¨ Looking after exchange rates
¨ Looking after balance of payments
¨ Helping member countries in economic development

Management
¨ A Board of Directors manages the IMF.
¨ One tradition has governed the selection of two most senior
posts of IMF.
¨ Firstly, IMF’s managing director is always European. IMF’s
president is always from the United States of America.
¨ The major countries of Europe and America control the IMF.
¨ This is because they have given more money to IMF by way
of first subscriptions, and so have larger share of voting
rights.

WORLD BANK (WB)
¨ World Bank also called as The International Bank for
Reconstruction and Development (IBRD)
¨ It was established in the year 1945 and started its operations in
the year 1946.
¨ It is the sister institution of International Monetary Fund (IMF).
¨ Its main objective is to reduce the poverty by promoting
sustainable economic development in member countries.
¨ It attains by providing loans and technical assistance for projects
and programmes in its developing member countries 30

Functions of World Bank
1.0 Development activities:
¨ It provides loans to its member-countries to meet
their developmental needs.
¨ It also provides technical assistance and other
services to the member countries to reduce poverty.
31

2.0 Providing Loans
¨ Each loan must be approved by IBRD’s executive directors.
¨ Apart from providing loans it also waives the loans under special
circumstances i.e. occurrence of natural calamities.
¨ After providing loans, the appraisal of the projects is carried out by
IBRD’s operational staff.
¨ The loan disbursements are subjected to the fulfillment of conditions
laid in the loan agreement.
¨ After the completion, the projects are evaluated by an independent
body and findings will be reported to the executive directors to
determine the extent to which project objectives were fulfilled.
32

3.0 Consultancy
¨ In addition to the financial help, IBRD also provides
technical assistance to its member countries
irrespective of loans taken from it or not.
¨ There is a growing demand from borrowers for
strategic advise, knowledge transfer and capacity
building.
33

4.0 Research and Training
¨ For assisting its member countries, the World Bank
offers courses and training related to economic
policy development and administration for
governments and organizations that work closely
with IBRD.
34

5.0 Trust–Fund Administration
¨ IBRD itself or jointly with International Development
Agency (IDA), on behalf of donors restricts the use
of funds for specific purposes only.
¨ The funds so obtained are not included in the list of
assets owned by IBRD.
35

6.0 Investment Management
¨ IBRD provides investment management services for
external institutions by charging a fee.
¨ The funds thus obtained are not included in the
assets of IBRD.
36

Affiliated Organizations of IBRD
¨ International Development Association (IDA)
¤ It was established in the year 1960. Its main goal is to
reduce the poverty through promoting economic
development in less developed areas of the world.
¨ International Financial Corporation (IFC)
¤ It was established in the year 1955. Its main aim is to
encourage the growth of productive private enterprises in
the member- countries by providing loans and investments
without a member’s guarantee
¨ Multilateral Investment Guarantee Agency (MIGA)
¤ Its main aim is to encourage the flow of investments for
productive purposes among member countries particularly
in developing countries.
37

DEPOSIT INSURANCE AND CREDIT
GUARANTEE CORPORATION (DICGC)
¨ The concept of insuring deposits kept with banks received
attention for the first time in the year 1948 after the
banking crisis in Bengal.
¨ Serious thought to the concept was, however, given by the
Reserve Bank of India and the Central Government after the
crash of the Palai Central Bank Ltd., and the Laxmi Bank Ltd.
In 1960.
¨ The Deposit Insurance Corporation (DIC) Bill was introduced
in the Parliament on August 21, 1961. After it was passed
by the Parliament, on December 7, 1961 and the Deposit
Insurance Act, 1961 came into force on January 1, 1962.
38

¨ The Deposit Insurance Scheme was initially extended to
functioning commercial banks only.
¨ Since 1968, with the enactment of the Deposit Insurance
Corporation (Amendment) Act, 1968, the Corporation
was required to register the 'eligible cooperative banks'
as insured banks under the provisions of Section 13 A
of the Act.
¨ The Government of India, in consultation with the
Reserve Bank of India, introduced a Credit Guarantee
Scheme in July 1960. 39

¨ The Reserve Bank of India operated the scheme up to
March 31, 1981.
¨ The Reserve Bank of India also promoted a public limited
company on January 14, 1971, named the Credit
Guarantee Corporation of India Ltd. (CGCI)
¨ The main thrust of CGCI was encouraging the commercial
banks to cater to the credit needs of the hitherto neglected
sectors, particularly the weaker sections of the society
engaged in non-industrial activities, by providing guarantee
cover to the loans and advances granted by the credit
institutions to small and needy borrowers covered under the
priority sector.
40

¨ With a view to integrating the functions of deposit
insurance and credit guarantee, the two
organizations i.e. Deposit Insurance Corporation
and Credit Guarantee Corporation of India Ltd
were merged and the present Deposit Insurance
and Credit Guarantee Corporation (DICGC) came
into existence on July 15, 1978.
¨ Consequently, the title of Deposit Insurance Act,
1961 was changed to 'The Deposit Insurance and
Credit Guarantee Corporation Act, 1961.
41

¨ Effective from April 1, 1981, the corporation
extended its guarantee support to credit granted to
small scale industries also.
¨ With effect from April 1, 1989, guarantee cover
was extended to the entire priority sector advances,
as per the definition of the RBI.
¨ With effective from April 1, 1995, all housing loans
have been excluded from the purview of guarantee
cover by the corporation.
42

LECTURE – 5
LEAD BANK SCHEME AND SCALE
OF FINANCE

LEAD BANK SCHEME
¨ The study group appointed by National Credit Council
(NCC) in 1969 under the chairmanship of Prof. D. R.
Gadgil recommended “Service Area Approach” for the
development of financial structure.
¨
¨ In the same year i.e., 1969, RBI appointed Sri. F.K.F
Nariman committee to examine recommendations of Prof.
Gadgil’s study group.
¨ The Nariman committee also endorsed the views of the
Gadgil committee on “Service Area Approach” and
recommended the formulation of “Lead Bank Scheme”.
¨ The RBI accepted the Nariman’s committee
recommendations and lead bank scheme came into force
from 1969.

¨ Under the lead bank scheme, specific districts are
allotted to each bank, which would take the lead
role in identifying the potential areas for banking
and expanding credit facilities.
¨ Lead bank is the leading bank among the
commercial banks in a district i.e. having maximum
number of bank branches in the district.
¨ Lead bank acts as a consortium leader for
coordinating the efforts of all credit institutions in
the each allotted district for the development of
banking and expansion of credit facilities

Phase I: Survey of the lead
district
¨ The RBI has mentioned the following functions of lead
bank under phase-I
¨
¤ Surveying the potential areas for banking in the district.
¤ Identifying the business establishments which are so far
dependent on non –institutional agencies for credit and
financing them so as to raise their income
¤ Examining the available marketing facilities for agricultural
and industrial products and linking credit with marketing.
¤ Invoking cooperation among different banks in opening new
bank branches.
¤ Estimating the credit gaps in various sectors of district
economy.
¤ Developing contacts and maintaining liaison with the
Government and other agencies.

Phase II-Preparation of credit
Plans
¨ RBI emphasized that the lead bank should:
¨
¤ Formulate the bankable loaning schemes involving intensive
use of labour, so as to generate additional employment.
¤ Disburse loans to increase the productivity of land in
Agriculture and allied activities, so as to increase the income
level.
¤ Give maximum credit to weaker sections of the society mainly
for productive purposes.
¤ Therefore lead bank scheme expects the banker to become an
important participant in the developmental process in the
area of its operation in rural areas, and the service area
approach put the banker in the position of implementing the
development plans.

REGIONAL RURAL BANKS
(RRBS)
¨ All India Rural Credit Review Committee
(AIRCRC) under chairmanship of Sri. B.
Venkatappaiah during the year 1969 was of the
opinion that over large parts of the country the
marginal and small farmers were deprived of
having access to the cooperative credit both for
production and investment purposes.
¨ This stressed the establishment of institutional
financial agencies under public sector.
Consequently the first spell of nationalization of
banks was done with greater expectations, but the
situation had not changed as per the expectations.

¨ Hence, the Government of India appointed a
working committee under the chairmanship of
Sri. M. Narasimham to study the financial
assistance rendered to the weaker sections in
the rural areas.
¨ This working committee recommended the
setting up of rural based institutional agencies
called “Regional Rural Banks” after identifying
shortcomings in the functioning of commercial
banks and cooperatives.

¨ The Government of India accepted the
recommendations of Sri. Narsimham committee
and regional rural banks came in to existence
through regional rural banks ordinance on 26th
September, 1975.
¨ Initially only 5 RRBs were set up on pilot basis
with sponsorship of commercial banks on
October 2nd, 1975.
¨ This ordinance of 1975 was replaced by the
Regional Rural Banks Act, 1976.

S. No. Sponsoring Bank Name of RRB Head quarters
1. Syndicate Bank Prathama Bank Moradabad (UP)
2. State Bank of India Gorakhpur Gorakhpur (UP)
3. United Bank of India Gaur Grameena Bank Malda (WB)
4. Punjab National Bank Haryana Kshetriya Bhiwani
(Haryana)
5. United Commercial
Bank
Jaipur Nagalur
Anchalik Grameena
Bank
Jaipur,
Rajashthan

Objectives of RRBs
¨ To develop rural economy.
¨ To provide credit for agriculture and allied activities.
¨ To encourage small scale industries, artisans in the
villages.
¨ To reduce the dependence of weaker sections (Marginal
farmers, small farmers and rural artisans) on private
money lenders.
¨ To fill the gap created by the moratorium on borrowings
from private money lenders.
¨ To make backward and tribal areas economically better by
opening new bank branches.
¨ To help the financially poor people in their consumption
needs.

Functioning of RRBs
¨ Each RRB is being sponsored by a scheduled
commercial bank. The operational area of each
RRB is one or two districts. Each branch of RRB
can serve a population of roughly 20,000 people.
¨
¨ Authorized share capital of each RRB is Rs. one
crore, contributed by central government, state
government and sponsoring commercial bank in
the ratio of 50:15:35. Issued capital for each
RRB is Rs. 25 lakhs.

¨ The rate of interest charged by RRBs on the
loans is same as that of Primary Agriculture
Credit Societies (PACS), but they are allowed to
offer 0.5 per cent interest more than that of
commercial banks on its deposits.
¨
¨ RRBs have simplified procedural formalities in
giving agricultural finance on recommendations
of Sri. Baldev Singh’s working group. RRBs use
local languages in their transactions. The cost
of operation i.e. user charges are low as
compared to that of commercial banks.

Scale of Finance
¨ It is an indicative cost taken as base cost
depending on which the amount to be financed
to a farmer is fixed.
¨ Normally scale of finance is given in a range, as
the cost of cultivation for a farmer practicing
traditional methods of farming and that of a
progressive farmer practicing modern methods
of cultivation differs.
¨ Scale of finance is fixed for annual, perennial
crops and livestock also.

Factors influencing the scale
of finance
¨ Type of the crop: It varies from crop to crop.
¨ Nature of the crop: Within the same crop
between the improved varieties and high
yielding varieties (HYVs) the scale of finance
differs.
¨ Season: Scale of finance differs with season for
the same crop.
¨ Type of land: Based on the type of the land i.e.
irrigated or dry the scale of finance differs with
the same crop.
¨ District/Area: For the same crop the scale of
finance varies from district to district.

How Scale of Finance is fixed
¨ Scale of finance is fixed for each district by a
committee known as District Level Technical
Committee (DLTC).
¨ The members of DLTC constitute
representatives of lead bank of that district,
NABARD, local co-operative banks and
commercial banks, officials of department of
agriculture& animal husbandry etc.
¨ DLTC compiles technical survey report with the
information obtained from NABARD. 15

¨ NABARD in turn obtains information from the state
agricultural department every year, which will have the
necessary details like what are crops grown, their extent
etc.
¨ By using the above details a potential map is prepared.
¨ By using this one can list out the priority activities to be
financed in each part of the district and extent to which
these are to be financed.
¨ Finally cost of cultivation is estimated based on the
market trends and needs.
¨ This scale of finance is not fixed and keeps on changing
every year.

LECTURE – 8
BASIC GUIDELINES FOR PREPARATION OF
PROJECT REPORTS- BANK NORMS –
SWOT ANALYSIS

Project
¨ Project is an activity on which we spend money in
expectation of returns, which lends itself to planning,
financing and implementation as a unit.
¨ It also refers to specific activity, with specific starting
point and specific end point to achieve a specific
objective.
¨ It should be measurable in costs and returns. It must
have priorities for area development and reach specific
clientele group

CONCEPT OR IDENTIFICATION OF THE PROJECT
¨ Cost
¨ Benefit

COST
¨ Project costs: includes the value of the resources in
maintaining and operating the project.
¨ Associate costs: includes producing immediate
products and services of the projects for use or sale.
¨ Primary costs or direct costs: these represent the
costs incurred in construction, maintenance and
execution of project.
¨ Indirect cost or Secondary costs: the value of
goods and services incurred in providing indirect
benefits from the projects such as houses, schools,
hospitals etc.

¨ Real Cost or Nominal costs: costs at current
market prices are nominal costs, whereas, if costs are
deflated by general price index, these are termed as
real costs.
¨ Social Costs: These are technological externalities
and technological spill-over accrued to the society due
to the presence of project, i.e. pollution problems,
health hazards, salinity conditions etc.

BENEFITS
¨ Tangible Benefits
¨ Intangible Benefits

Tangible Benefits
¨ Incremental income due to the existence of
projects is obtained from the following changes:
¤ Improvement in cropping pattern involving high value
crops.
¤ An increase in the productivity of crops.
¤ Adoption of recommended package of practices.
¤ Increase in cropping intensity.
¤ Reduction in cost of cultivation of crops.
¤ Large scale economies due to specialization.

Intangible Benefits
¨ These include better income distribution, national
integration, better standard of living etc.
¨ In identification phase, it is also important to see
whether the project is implemented in high priority
areas, and whether on prima-facia grounds the project
is economically feasible.
¨ It is also imperative to identify problems and objectives
of the projects and whether the Govt. gives sanction for
the project implementation or not.

FORMULATION OR PREPARATION
¨ The following points are considered while
formulating the project:
¤ The location of the project and project site
¤ Technical analysis
¤ Assessment of suitability and adequacy of natural
resources
¤ Technical, financial, commercial, managerial,
organisational, social and economic etc.
¤ Adequacy of communication system, market and
storage facilities

1. Technical Aspect
¨ In case of agricultural projects, the issues include the
aspects related to the pre-production, production and
post-production aspect.
¨ We have to examine the soil types, problems associated
with different types of soils, potentially which soils offer
for development, irrigation supply and availability, crops
to be grown, availability of desired variety of seeds in
required quantities, availability of other complementary
inputs as per choice, credit facilities, pest and disease
problems, possibility of mechanisation, expected yields,
storage, processing, marketing facilities, etc

2. Financial Aspect
¨ find out the sources of raising financial assistance and
terms and conditions of obtaining finance from the
credit agencies.
¨ The implementing agency should be in position to
estimate the financial requirements and anticipated
returns, through the planning and budgeting.
¨ Once the incremental income is arrived at, the
repayment capacity duly giving allowance for risk and
uncertainty can be workout.

3. Commercial Aspect
¨ It focuses on the estimation of effective demand,
availability of inputs supplies and arrangement for the
output marketing.
¨ Market potentiality for the projects needs a careful
scrutiny.

4. Managerial Aspect
¨ Find out the managerial abilities of the
beneficiaries.
¨ The managerial skills can be sharpened, if
necessary, technical skills are impartment by the
extension agencies.

5. Organisational Aspect
¨ Prepare the organisational hierarchy of the
implementing agency.
¨ The availability of staff at various cadres,
demarcation of authority and linking of
authority and responsibility etc. are expected to
be dealt with, under this aspect.

6. Social Aspect
¨ Here customs, culture, traditions, habits etc of
the beneficiaries are considered.
¨ The other relevant implications like the
probable changes in the living standard,
material welfare, consumption habits, income
distribution effect etc.

7. Economic Aspect
¨ Here we examine the benefits which the project
is going to be contributes in terms of the
utilisation of scarce resources of the nation.
¨ The project is going to benefit one section of the
society or the entire area of the project.
¨ The indirect effects like the income distribution
need to be assessed.

APPRAISAL OR ANALYSIS
¨ Appraisal should take place before the implementation
of the project.
¨ It is done independently by specialists.
¨ In the appraisal stage, it is important to know whether
the project is technically feasible according to the data
available.
¨ The management capabilities and capacity of
administrative personnel must also be assessed in
project appraisal.

IMPLEMENTATION
¨ The secret of successful implementation
depends up on the extent of realism put into the
plans drawn beforehand.
¨ It is often not uncommon to notice our plans
getting deviated from the reality.
¨ The project implementation can be divided into
three different periods, viz., investment period,
development period, and full production period.

MONITORING
¨ Monitoring is the timely collection and analysis
of data on the progress of a project, with the
objective of identifying constraints, which
impede successful implementation.
¨ This is highly desirable particularly when
projects fail to be completed as per time
schedule or in the process of attaining the set
goals.

EVALUATION
¨ This is the last phase of project cycle.
¨ It is not confined to the completed project. Evaluation
can be done several times during the life of a project.
¨ In the evaluation process, it is important to see how far
the objectives set out in the project are achieved.
¨ Deficiency or failures to achieve the objectives may be
analysed and appropriate solutions to such failures
answered.

¨ In the first phase evaluation is attempted before any
change occurs in the existing situation.
¨ This is primarily meant to assess the economic feasibility
of the project, since it is done very beginning of the
project.
¨ It is also known as pre-project evaluation.

¨ The concurrent evaluation is basically meant for
identifying and analysing the pitfalls in the execution of
the project.
¨ Ex-post evaluation is done after completion of
project. This is done to find out the achievement of the
objectives of the project. This type of evaluation is done
by the financing banks or sponsoring agency or
Government.

Investment
¨ It involves decisions to commit the firm’s funds to the
long-term assets.
¨ Capital budgeting or investment decisions are of
considerable importance to the firm since they tend to
determine its value by influencing growth, profitability
and risk.
¨ The investment decision of a firm are generally known as
the capital budgeting or capital expenditure decision.
¨ The following are the feature of investment decision:
¤ The exchange of current funds for future benefits;
¤ The funds are invested in long-term assets; and
¤ The future benefits will occur to the firm over a series of years.

Importance of Investment Decision
¨ They influence the firm’s growth in long run;
¨ They affects the risk of the firm;
¨ They involve commitment of large amount of
funds;
¨ They irreversible or reversible at substantial
loss; and
¨ They are among the most difficult decision to
make.

Investment Analysis (Capital Budgeting)
¨ Investment in agriculture is two types:
¤ Operating investment such as seed, feed, fertilizer etc.
¤ Capital assets such as land, machines, projects etc.
¨ Analysis of investment is different for these categories of investment, owing
to differences in timing of expenses and their associated returns
¨ Investment on operating inputs occurs within one production cycle of a year
or sometime less, but investment on capital assets entails a longer time
period
¨ In the profit maximization principle, time is not brought into consideration
because both expenses and returns are assumed to fall in the same
production cycle
¨ But capital investments made in agricultural projects are made in different
time periods and the returns are also spread over time.
¨ In order to assess the returns from investments, available alternatives must
be weighted for different lengths of time in respect of costs and returns.

Time Value of Money
¨ We use two types of time value of the money
¤ Future Value of Present Money
¤ Present Value of Future Money

Future Value of Present Money
¨ A rupee today is worth more than a rupee in future.
¨ This is primarily due to its opportunity cost, i.e. interest.
¨ Interest will be added to the principal over time hence its value
increases.
¨ Future value of present sum is an important concept in financial
analysis and this is called compounding.
¨ In the compounding process, the interest is added to the
principal at the end of each time period, which in tern, in
interest.
¨ This future value of present investment in the project is
calculated by using the well taken formula of compound
interest.

¨ Where, A = Future value of the present sum invested in the
project; P = Principal amount invested in the project; i =
Interest rate in per cent; and t = Number of year
¨ Annuity: By definition annuity means a stream of payments or
returns over time. The future value of annuity can be estimated
using the following formula:
¨ Where, A = Future value; P = Annual investment; t = Time
period and i = Rate of interest
( )t
i
P
A +
= 1
( )
i
i
P
A
t
1
1 -
+
=

Present Value of Future Money
¨ The present value of future sum is the current value of
investment to be received in the future.
¨ This present value in worked out through discounting process in
which the future sum is discounted back to the present time to
find out its current or present value.
¨ The rational behind this process is that a sum to be received in
future is somewhat less now, because of time difference
assuming a positive interest rate.
¨ Discounting is the inverse procedure of compounding.
¨ A present sum is compounded to know the future value and
future sum is discounted to know the present value of future
amount.

¨ or
¨ Where, PW = present worth of future money; P = Money
value in future; i = rate of interest and t = Project life period
in year
¨ The present value of annuity or stream of constant annual
payment is find out using the following formula.
¨ Where, PW = present worth of future money; P = Money
value in future; i = rate of interest and t = Project life period
in year.
( )t
i
P
PW
+
=
1 ( )t
i
P
PW
+
=
1
1
( )
i
i
P
PW
t
+
-
=
1
1

¨ The investment analysis also called capital budgeting.
The profitability of two or more alternative
investment projects is determined through capital-
budgeting techniques. Four components are required
for the analysis of investment. They are:
¤ Net cash revenue from different projects;
¤ Their costs;
¤ Terminal or salvage value of investment; and
¤ Interest or discounting rate to be used.

¨ Broadly there are two methods of project appraisal
i.e. undiscounted measures and discounted
measures.
1. Undiscounted measures: Payback period, Ranking by
inspection, Proceeds per rupee of outlay, Average annual
proceeds of rupee outlay etc. are important.
2. Discounted measures: Net Present Worth (NPW), Benefit-
Cost Ratio (B-C Ratio), Internal Rate of Return (IRR) and
profitability Index are prominent.

UNDISCOUNTED MEASURES
1. Average Rate of Return
2. Payback Period

1. Average Rate of Return
¨ This is another simple choice criterion (undiscounted) and this
procedure,
¨ total receipts are first divided by the project life span and the
average proceeds obtained per year are divided by the initial
investment on the project.
¨ Here too, ranking is given to the projects, based on the highest
magnitude of the estimation.
¨ The major drawback with undiscounted measures is that for the
same data of the project, we get different rankings, hence
choice process becomes useless.
¨ Rankings by these methods are inconsistent and incompatible

2. Payback Period
¨ This is the simple method (undiscounted) of ranking a project in
the length of time required to get back the investment on the
project.
¨ The payback period of the project is estimated by using the
straight forward formula:
¨ Where, P is the payback period of the project in year; I is the
investment of the project in rupees and E is the annual net cash
revenue in rupees
¨ The preference of a particular project is based on the lesser
payback period
E
I
P =

Initial investment = Rs 20,000
Year
Cash flow (in Rs)
Project “A” Project “B”
0 -20,000 -20,000
1 5,000 4,000
2 5,000 4,000
3 5,000 4,000
4 5,000 4,000
5 5,000 4,000
6 5,000 4,000
year
Rs
Rs
A
oject 4
5000
20000
"
"
Pr =
=
year
Rs
Rs
B
oject 5
4000
20000
"
"
Pr =
=

DISCOUNTED MEASURES
1. Net Present Worth (NPW) or Net Present Value
(NPV)
2. Benefit-Cost Ratio (B-C Ratio)
3. Internal Rate of Return (IRR)

1. Net Present Worth (NPW) or Net Present
Value (NPV)
¨ This is simply the present worth of the cash flow stream.
¨ Sometimes, it referred as Net Present Value (NPV).
¨ The choice of discount rate to be used in the measurement of
NPW poses many problems as discounted earlier.
¨ NPW is helpful in working out benefit-cost ratio of the project.
¨ The selection criterion of the projects depends upon the positive
value of the net present worth, when discounted at the
opportunity cost of the capital.
¨ This could be satisfactorily done, provided there is a correct
estimate of opportunity cost of capital NPW is an absolute
measures, but not relative

¨ The NPW of the project is estimated using the
following equation:
¨ Where, P=Net cash flow in the year; i = discounting
rate; t = time period; and C = initial cost of the
investment.
( ) ( ) ( ) ( )
C
i
P
i
P
i
P
i
P
NPW n
t
n
t
t
t
-
+
+
+
+
+
+
+
+
=
1
..
..........
1
1
1 3
2
1
3
2
1

Estimation of NPW for Mango Orchard Project
Year Cost
(Rs)
Returns
(Rs)
Net Income
(Rs)
Discounted
Factor at
12%
NPW
(Rs)
At the end of 6
year
25000 - -25000 0.507 -
12675.00
7 year 4250 10260 6010 0.452 2716.52
8 year 4792 12550 7758 0.404 3134.23
9 year 5368 14530 9162 0.361 3307.48
10 year 5975 16275 10300 0.322 3316.60
11 year 6456 19396 12940 0.287 3713.78
12 year 7187 21470 14283 0.257 3670.73
7184.34

2. Benefit-Cost Ratio (B-C Ratio)
¨ We compare the present worth of costs with present worth of benefits.
¨ Absolute value of the benefit-cost ratio will change based on the interest
rate choosen.
¨ While ranking the projects depending upon the B-C ratio, the most common
procedure of selecting projects is, to choose the projects having B-C ratio of
more than one, when discounted at opportunity cost of capital.
¨ Finally, the given project is opted for implementation, among alternatives
based on the highest B-C ratio.
( )
( )
å
å
=
=
+
+
=
- n
t
n
t
n
t
n
t
r
C
r
B
Ratio
C
B
1
1
1
1
B-C Ratio = Present worth of gross return/ Present worth of costs

Benefit-Cost Ratio for Mango Orchard Project
Year Cost
(Rs)
Gross
Returns
(Rs)
Discounted
Factor at
12%
Present
worth of
costs (Rs)
Present
worth of
gross
income (Rs)
At the end of 6 year 25000 - 0.507 12675.00 -
7 year 4250 10260 0.452 1921.00 4637.52
8 year 4792 12550 0.404 1935.97 5070.20
9 year 5368 14530 0.361 1937.85 5245.33
10 year 5975 16275 0.322 1923.95 5240.55
11 year 6456 19396 0.287 1852.87 5566.55
12 year 7187 21470 0.257 1847.06 5517.79
24093.70 31277.94
B-C Ratio = Present worth of gross return/ Present worth of costs
= 31277.94/24093.70
= 1.30

3. Internal Rate of Return (IRR)
¨ In the computation of IRR, the time value of money is accounted.
¨ The method of working IRR provides the knowledge of actual rate of return
from the different projects.
¨ Thus IRR is known as “Marginal Efficiency of Capital” or Yield on the
Investment”.
¨ This is the discount rate at which the present values of the net cash flow are
just equal to “zero” i.e. NPW = Zero.
¨ In the working procedure, an arbitrary discount rate is assumed and its
corresponding NPW is arrived at.
¨ The positive NPW value of the project indicates that IRR is still higher and
next assumed arbitrary IRR value must be comparatively higher than the
initial level.
¨ This process is continued until NPW become negative.

ú
ú
ú
ú
ú
ú
ú
ú
û
ù
ê
ê
ê
ê
ê
ê
ê
ê
ë
é
ú
ú
ú
û
ù
ê
ê
ê
ë
é
+
ú
ú
ú
û
ù
ê
ê
ê
ë
é
=
ú
ú
ú
û
ù
ê
ê
ê
ë
é
rate
discount
two
the
at
flow
cash
the
of
worths
present
the
between
difference
Absolute
rate
discount
lower
the
at
flow
cash
the
of
worth
esent
rate
discount
two
the
between
Differnce
rate
discount
Lower
turn
of
Rate
Internal
Pr
Re

Estimation of IRR for Mango Orchard Project
Year Cost
(Rs)
Gross
Returns
(Rs)
Net
Income
(Rs)
Discount
ed Factor
at 25%
Net
Present
worth
(Rs)
Discounte
d Factor
at 30%
Present
worth of
gross
income (Rs)
At the end of
6 year
25000 - -25000 0.262 -6550.00 0.207 -5175.00
7 year 4250 10260 6010 0.21 1262.01 0.159 955.59
8 year 4792 12550 7758 0.168 1303.30 0.123 954.23
9 year 5368 14530 9162 0.134 1227.71 0.094 861.23
10 year 5975 16275 10300 0.107 1102.10 0.073 751.90
11 year 6456 19396 12940 0.086 1112.84 0.056 724.64
12 year 7187 21470 14283 0.069 985.53 0.043 614.17
35453 443.49 -313.24
IRR = 25 + 5 [443.49/(443.49+313.24)]
= 25 + 5 (0.586)
= 40 + 2.93
= 27.93

SWOT Analysis
¨ SWOT analysis is a process that identifies an
organization's strengths, weaknesses, opportunities and
threats.
¨ SWOT analysis determines what assists the firm in
accomplishing its objectives, and what obstacles must be
overcome or minimized to achieve desired results: where
the organization is today, and where it may be
positioned in the future.

Elements of a SWOT Analysis
¨ Strengths: describe what an organization excels at and
separates it from the competition (like a strong brand, loyal
customer base, strong balance sheet, unique technology etc.).
¨ Weaknesses: stop an organization from performing at its
optimum level. They are areas where the business needs to
improve to remain competitive (things like higher-than-
industry average turnover, high levels of debt, an
inadequate supply chain or lack of capital).
¨ Opportunities: refer to favourable external factors that an
organization can use to give it a competitive advantage.
¨ Threats: refers to factors that have the potential to harm an
organization (like rising costs for inputs, increasing
competition, tight labour supply etc.).

WHEN DO YOU USE SWOT?
¨ Explore possibilities for new efforts or solutions to problems.
¨ Make decisions about the best path for your initiative.
Identifying your opportunities for success in context of
threats to success can clarify directions and choices.
¨ Determine where change is possible. If you are at a juncture
or turning point, an inventory of your strengths and
weaknesses can reveal priorities as well as possibilities.
¨ Adjust and refine plans mid-course. A new opportunity might
open wider avenues, while a new threat could close a path
that once existed.

Advantages of SWOT Analysis
¨ A SWOT analysis is a great way to guide business-strategy
meetings.
¨ It can be very powerful to have everyone in the room to
discuss the core strengths and weaknesses of the company
and then move from there to defining the opportunities and
threats, and finally to brainstorming ideas.
¨ Often the SWOT analysis that you envision before the session
changes throughout to reflect factors you were unaware of
and would never have captured if not for the group’s input.

QUESTIONS TO ASK DURING THE
PROCESS
¨ Strengths: For this quadrant, think about the
attributes of yourself and your business that will
help you achieve your objective. Questions to
consider:
¤ What do you do well?
¤ What are your unique skills?
¤ What expert or specialized knowledge do you have?
¤ What experience do you have?
¤ What do you do better than your competitors?
¤ Where are you most profitable in your business?

¨ Weaknesses: For this quadrant, think about the
attributes of yourself and your business that could
hurt your progress in achieving your objective.
Questions to consider:
¤ In what areas do you need to improve?
¤ What resources do you lack?
¤ What parts of your business are not very profitable?
¤ Where do you need further education and/or
experience?
¤ What costs you time and/or money?

¨ Opportunities: For this quadrant, think about
the external conditions that will help you achieve
your objective. Questions to consider:
¤ What are the business goals you are currently working
towards?
¤ How can you do more for your existing customers or
clients?
¤ How can you use technology to enhance your
business?
¤ Are there new target audiences you have the potential
to reach?
¤ Are there related products and services that provide
an opportunity for your business?

¨ Threats: For this quadrant, think about the
external conditions that could damage your
business's performance. Questions to consider:
¤ What obstacles do you face?
¤ What are the strengths of your biggest
competitors?
¤ What are your competitors doing that you're not?
¤ What's going on in the economy?
¤ What's going on in the industry?

Advantages to Using SWOT for
Investing
¨ What SWOT analysis does do, however, is force some
discipline and systematic, quantifying thinking into
the investment evaluation process.
¨ A careful and thoughtful analysis should bring into
focus the balance of a company's advantages and
vulnerabilities, and also give the investor
a benchmark to evaluate the company in future years.
¨ On balance, SWOT analysis is best used by investors
as a way of crystallizing and the thought process that
goes into an investment decision.

¨ The entire process can, and should, make an investor
think more deeply about the weaknesses of and
threats to a company.
¨ SWOT analysis also works best when it is done
consistently.
¨ By using it on a regular basis and keeping track of the
information, SWOT analysis can allow for better
comparisons across industry participants, and more
frequent use can also help limit some of the dangers of
bias and selective (or incomplete) analysis.

LECTURE – 10
AGRICULTURAL COOPERATION –
MEANING, BRIEF HISTORY OF
COOPERATIVE DEVELOPMENT IN INDIA,
OBJECTIVES, PRINCIPLES OF
COOPERATION, SIGNIFICANCE OF
COOPERATIVES IN INDIAN AGRICULTURE

Meaning of co-operation
 Co-operation is voluntary association of persons for
achieving a common goal.
 It generally means working together for a common
goal
2

Definition
 According to Huber Calvert “Co-operation is a form of
organization, where in persons voluntarily associate
together on the basis of equality for the promotion of
common economic interest of themselves”
 According to Sir Horace Plunkett, “Co-operation is self -
help made effective by organization.”
 The motto of co-operation is “Each for all and all for
each.”
3

Principles of Cooperation
 Principle of open and voluntary association
 Principle of Democratic organization
 Principle of service
 Principle of self-help and mutual help
 Principle of distribution of profits and surpluses
 Principle of political and religious neutrality
 Principle of Education
 Principle of thrift
 Principle of publicity
 Principle of honorary service
4

1. Principle of open and voluntary
association
 The admission and membership into a co-operative
society is open to everybody irrespective of caste,
religion, any social and political affiliations.
 It does not allow any discrimination.
 The membership is open as well as voluntary
 Once an individual joins as a member, there is no
compulsion on him to continue as such.
 At any time he has every freedom to withdraw from the
society.
5

2. Principle of Democratic organization
 Co-operatives are organized and managed based on the
principle of democracy.
 Each member is given equal right to vote irrespective of his
share capital in the society.
 “One man one vote” is the important principle of
cooperation.
 The elected board of management will work based on the
acts, rules and laws guiding the matters of co-operation.
6

3. Principle of service
 Co-operatives main aim is to cater to the needs of
its members.
 Unlike business organizations, the cooperatives are
more service - oriented rather than profit -
oriented.
 This spirit of service invokes loyalty among the
members. 7

4. Principle of self-help and mutual help
 The funds of society are contributed by the members in
the form of share capital.
 In co-operatives generally, the members are financially
weak.
 The society can barrow required capital from different
financial sources at lower interest rates and offer the
same to the members for productive purposes.
 This may not be possible at individual level. Hence, in
co-operatives, the principle of self-help and mutual-
help can work for the welfare of the members.
8

5. Principle of distribution of profits and
surpluses
 Co-operatives are not interested in making profits like
business organizations.
 But, they are also required to run on same minimum
profits through efficient working.
 In co-operatives a certain amount of profits i.e. 25%
will be kept back as reserve fund and the remaining
75% can be distributed among the members based on
their contribution to the share capital.
9

6. Principle of political and religious
neutrality
 The important strength for growth of the cooperatives is
the unity among the members and non-interference of
political parties.
 The members of the cooperatives should continuously
work for the growth of the society with harmony,
integration and un-biasedness towards any religion or
political party.
 The political and religious differences of the members
should be kept away for the smooth running of the
cooperatives. 10

7. Principle of Education
 If the members in cooperative society are illiterate, their
participation is poor in running the cooperatives and
they cannot understand what is going on in the society.
 Hence, first such type of illiterate members should be
made literate.
 For promoting awareness and efficiency in the
operations of cooperatives, education to members and
training to office bearers and executives is necessary.
11

8. Principle of thrift
 The cooperatives must aim at inculcating the habit of
thrift i.e. “propensity to save” among the members.
 Thrift and service are part and parcel of cooperation.
 The members who save their money with cooperatives
should get incentives.
 Thrift is very much basis of self-help, but it must
precede credit. It implies that in sanctioning of credit, a
priority should be given to the members who save.
12

9. Principle of publicity
 The cooperatives should make sincere efforts to tell
their members about the society and all the
dealings of the society should be made public.
13

10. Principle of honorary service
 The honorary personnel will simply supervise and
direct operations of cooperatives.
 But to have efficiency in the society, trained
secretaries with salaries are needed.
 But if the societies are started with poor members, it
is better to have honorary office bearers, because
such societies cannot afford to pay salaries to such
office bearers. 14

Maxims of co-operation
 The founder of Irish co-operative movement Sir
Horace Plunkett sums up cooperation in three
famous maxims.
15

1. Better Farming
 It means helping the farmer to realize a better
production in the farm business through adoption of
requisite technology.
 The farmers’ objective of achieving higher
production and productivity will be realized only
when the resources are available in adequate
quantities and at right time.
 For this necessary capital for the farmer also should
be provided by institutional agencies at right time.
16

2. Better Business
 Farmers should get a better deal in buying the inputs as
well as disposing the products.
 The efforts of the farmer will be fruitful only when an
efficient marketing system is accessible to him.
 Farmers as a group enjoy better bargaining power
when compared individually.
 Hence co-operatives should provide inputs needed by
the farmers at reasonable rates and arrange for the
disposal of produce at favourable prices.
17

3. Better Living
 This implies that the cooperative societies should supply
consumer goods to the consumers at reasonable rates.
 This helps the consumers to pay less than what they pay
in open market.
 A good and successful cooperative help in preventing
marketing middlemen (as minimum as possible)
especially private traders from taking undue
advantage.
 Thus co-operatives help in getting favorable prices to
producers for their products and providing the same
products for consumers at reasonable prices. 18

History of Cooperative Movement in
India
 Pre-Independence Era
 Post – Independence Era

Pre-Independence Era:
 The cooperative movement in India during pre-
independence era can be divided in to four phases
viz.,

 Initiation phase (1904-1911)
 Modification phase (1912-1918)
 Expansion phase (1919-1929)
 Restructuring phase (1930-1946)
20

Initiation phase (1904-1911)
 The revolts found in Poona and Ahemadnagar areas of Maharashtra
attracted the attention of government. Immediately the government passed
three acts viz.,

 Deccan Agriculture Relief Act (1879)
 Land Improvement Loan Act ( 1883)
 Agriculturists Loan Act (1884)

 In 1892, the Madras government appointed Federick Nicholson to study
and examine the village banks organized on cooperative lines in Germany.
After coming from there Nicholson submitted a report and raised a slogan
“Find Raiffeissen”.

 During 1901, Indian Famine Commission and another committee headed by
Sir Edward Law recommended the formation of credit societies on
Raiffeissen model. These recommendations resulted in the enactment of
Cooperative Credit Societies Act (1904). 21

Important/salient features of 1904
Cooperative Credit Societies Act:.
 Classification of cooperative societies into rural and
urban was made.
 Both the organization and control of these societies
was to be done by Registrar of cooperatives.
 Loans could be extended to the members on
personal and collateral security.
 The principle of “one man one vote” was specified
in the Act.
22

Modification phase (1912-1918):
 Cooperative Societies Act of 1912 was enacted for
rectifying the shortcomings of 1904 Act.
 Important features of 1912 Cooperative Societies Act:

 It provided legal protection to all types of cooperatives
 Liability is limited in the case of primary societies and unlimited
for central societies.
 As this act of 1912 gave provision for registration of all types of
cooperative societies, it led to the emergence of rural
cooperatives both on credit and noncredit fronts. But this growth
was uneven spatially i.e. localized in some areas only. 23

Expansion phase (1919-1929):
 This phase was considered as “Golden Era” for the cooperative
movement in India.
 Cooperative movement got impetus as the cooperatives became a
provincial subject under Montague Chelmsford Act of 1919.
 The economic prosperity during the period 1920-1929 also
contributed to the growth of cooperative movement.

 During the same period, the birth of Land Mortgage Banks (LMBs)
took place first in Punjab (1924) subsequently in Madras (1925)
and in Bombay (1926).
24

b) Post-Independence Era
 Planning commission was established in March, 1950,
prepared first five year plan (1951-1956) in 1951
under which main objectives with regard to
cooperatives were:

 Involvement of cooperatives in rural development
programmes.
 Development of well organized credit system.
 Extending cooperatives to the fields of farming, industry,
housing, marketing etc.
 Training of higher level personnel engaged in cooperatives.
25

 Under Second five year plan (1956-1961)
 National Cooperative Development and Warehousing
Board (NCDWB) was established
 During Third five year plan (1961-1966)
 National Cooperative Development Corporation (NCDC)
was established in 1963 and also National Federation of
Cooperative Sugar Factories (NFCSF).
 In the year 1967, Vaikunth Mehta National Institute of
Cooperative Management (VAMNICOM) was started in
Poona.
26

 Fourth five year plan (1969-1974)
 Indian Farmers Fertilizer Cooperative Limited (IFFCO) was
established at Kandla, Gujarat.
 Fifth five year plan (1975-1979)
 new fertilizer projects were initiated
 Sixth five year plan (1975-1979)
 National Bank for Rural Development (NABARD) was
established for providing credit to agriculture and allied
activities
27

 Seventh five year plan (1985-1990)
 (a) Organizing of special cooperative loan recovery
camps; (b) Strengthening of National and State
Consumer Federation (NSCF); (c) Introduction of single
window system of credit in Andhra Pradesh.
 Eighth five year plan (1992-1997)
 emphasized replication of Anand Pattern of
cooperatives for milk and strengthening of processing
cooperatives.
28

 During Ninth Five Year Plan (1997-2002)
 Finalization of a new Multi State Cooperative Societies
Bill to replace the existing Multi State Cooperative
Societies Act, 1984
 Tenth Five Year Plan (2002-2007)
 study of the role of the cooperatives and challenges to
be met in the wake of globalization of Indian economy
29

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