Microfinance for Agriculture:The Way Forward through JLGs

The rural finance paradigm of the 1960s and 1970s was based on public authorities' desire to facilitate access to rural finance. Failure of this approach in 1990s left a vacuum as far as agricultural credit is concerned. Despite the great hopes associated with the strong growth of the microfinance sector, it soon became clear that the supply of microfinance for agricultural activities was marginal at best and poorly adapted. Despite the relatively heterogeneous nature of data available, there is a consensus that agriculture is inadequately funded and that the supply does not meet the needs of farmers. In India, though microfinance expanded at a fast pace, it was unable to cater to the needs of agriculture. To overcome this, NABARD has brought forward the concept of Joint Liability Groups (JLGs). This paper studies the working of JLGs in Andhra Pradesh and Kerala. The analysis in this paper clearly brings out that for expanding microfinance services for agriculture, the way forward would have to be the JLG route. The experiences indicate that JLGs have served as collateral substitutes for small and marginal farmers, oral lessees, tenant farmers and share croppers thereby facilitating the increased outreach for agricultural microfinance. The concept has now reached a stage where it has to be upscaled and mainstreamed in an effective manner.