The role of foreign donors and investors

Part 3

8 March 2020

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Given that the Indian government permits varying degrees of foreign investment in the financial services sector, what is the role of foreign donors and investors?

Of the families interviewed by Global Ground Media, several farmers who killed themselves had loans from DCC Banks – 12 from Yavatmal DCC Bank and two from Akola DCC Bank, ranging from Rs 45,000 (US$ 636) to over Rs 100,000 (US$ 1414).

Five had loans from Central Bank of India, where the average loan was Rs 95,000 (US$ 1337) and three from Bank of Maharashtra, where the average loan taken was approximately Rs 119,000 (US$ 1675). Both are public sector banks.

Two each had loans from Mahindra Finance, an NBFC (average loan taken was Rs 120,000 or US$ 1689) and Bharat Financial Inclusion Limited, an NBFC-MFI, where the average loan was Rs 15,000 (US$ 211). Six had loans from private lenders. In most instances, farmers had borrowed from more than once source.

The remaining loans were taken from other public sector and private sector banks and NBFCs.

DCC Banks

DCC Banks are part of the country’s rural cooperative credit structure. Deposits are the main resource base for DCC Banks which also raise funding through borrowings, in loans through the National Bank for Agriculture and Rural Development (NABARD) and state cooperative banks. A development financial institution, NABARD also offers financial restructuring services and other financial assistance to the DCC Banks.

NABARD is 100 percent owned by the Indian government. However, NABARD’s ‘externally aided projects’ draw financial and other assistance from the German development bank KfW, German development agency GIZ and multilateral development agencies like the International Bank for Reconstruction and Development (IBRD) and the Asian Development Bank (ADB). Swiss Development Cooperation, World Bank, European Union and German Development Cooperation are other international agencies which extend funds and grants to NABARD.

In 2006, the Indian government launched a programme for revival and reform of the country’s rural cooperative credit structure (SCBs, DCC Banks and PACs) to improve rural households’ access to affordable finance.

Financing partners for the programme in the five states of Andhra Pradesh, Bihar, Madhya Pradesh, Maharashtra and Rajasthan included World Bank, Asian Development Bank, KfW and GIZ, with NABARD as the implementing partner.

The World Bank committed an amount of approximately US$ 417 million in loans and credit, whereas KfW’s commitment was 130 million euro (US$ 145 million) and ADB ‘s commitment was US$ 1 billion in loans. The Indian government discontinued the programme in 2012 when its own funds were exhausted.

ADB’s assessment for the programme termed it less than effective. “SCBs and DCCBs in general have not improved their efficiency of operations, have remained undercapitalized, and had no substantial improvement in profitability,” the assessment report said.

KfW’s assessment said that DCCBs had not been able to reduce their NPA levels by half, as targeted, nor achieve their targeted growth rates. On a six point scale, it assigned the project a Level 4 rating or an unsatisfactory result, where negative results dominated despite discernible positive results.

The World Bank evaluated the programme as moderately satisfactory.

Interestingly, the Indian government in 2014 announced a revival package of Rs 23750 million for 23 unlicensed DCC Banks in Uttar Pradesh, Maharashtra, Jammu and Kashmir and West Bengal, which were unable to meet their capital to risk asset ratio targets. NABARD lists this as a government scheme, with contributions shared by the Central government, state government and NABARD. Participation by foreign donors is not mentioned.

Central Bank of India and Bank of Maharashtra

Public sector banks like Central Bank of India and Bank of Maharashtra were also major sources of loans to farmers, according to interviews by Global Ground Media with relatives of farmers who ended their lives.

In the case of Central Bank of India, the Indian government has about 91 percent of shares, whereas foreign portfolio investors (or FIIs) have 0.24%. For Bank of Maharashtra, foreign institutional investors (FIIs) have 0.10 percent of shares while about 87 percent is held by the Indian government.

Both Central Bank of India and Bank of Maharashtra extend microfinance credit to self help groups (SHGs) under the Self Help Group Bank Linkage Programme, launched by NABARD which aims to provide the poor with bank credit.

One way the government promotes the SHG Bank Linkage Programme, is through the National Rural Livelihoods Mission (DAY-NRLM), renamed as the Deendayal Antyodaya Yojana (DAY-NRLM). Banks have a key role as lending institutions under DAY-NRLM.

The scheme is aided in part by the World Bank. In 2011, the World Bank committed credit worth $US 1 billion towards the scheme, mainly to mobilise and promote SHGs.  In March 2019, it provided further credit of US$ 250 million to DAY-NRLM aiming to promote women-led farm and non-farm enterprises.

In the period from April-October 2019, under DAY-NRLM, Central Bank of India disbursed Rs 19260 million (US$ 268 million) to 11,8520 SHGs linked with it, while Bank of Maharashtra disbursed Rs 1553.8 million (US$ 21 million) to 12,292 linked SHGs.

The World Bank stated per email to Global Ground Media, “Rural financial distress has been a serious concern in India for many years. Because a substantial proportion of rural incomes now come from non-farm sources, access to credit plays an important role in enabling non-farm livelihoods and enterprise opportunities, such as small-retail, food processing, food vending, and skills training and job placements. The World Bank Group (WBG) in India has, over decades, supported several initiatives aimed at improving financial inclusion in the country. […] The World Bank Group’s private sector arm, the International Finance Corporation (IFC), has been working with key private sector financial institutions in developing a sound, responsible and sustainable microfinance sector in India and presently reaches 30 million clients.”

Bank of Maharashtra and Central Bank of India did not respond to requests for comment.

Mahindra Finance

Farmers had also borrowed from NBFCs like Mahindra Finance, where foreign institutional investors hold 26.77% of the company’s shareholding by ownership.  According to records of investor meetings, foreign investors for the company include the UK based HSBC and the US based Morgan Stanley – both are investment banks and financial services companies. HSBC and Morgan Stanley did not respond to requests for comment.

In 2018, International Finance Corporation (IFC) – a member of the World Bank and a development finance institution invested Rs 6.4 billion (US$ 100 million) in Mahindra Finance, which said in a statement that the loan would help the company extend “loans to individuals, including farmers, to buy tractors, vehicles and other equipment, along with financing small and medium enterprises.”

While foreign donors appear to have a role in Indian agrarian distress, development economist Karkada Nagaraj says that farmer suicides are too complex to be captured by mono-causal explanations.

“A combination of factors, cumulative over a period of time may lead to the desperate, extreme measure of suicides by the farmer. To pick any one cause–as the ‘last cause’, the last straw that broke the camel’s back – as the cause behind the suicide would be too simplistic. This holds true for even for important factors like debt burden, price crash or crop failure,” he wrote over email.

Nevertheless, as farmer suicide numbers mount in Maharashtra, the role of various lenders, who perform the vital function of making credit available to farmers, deserves scrutiny.

If you need help or know someone who does, please reach out now through a suicide hotline near you.

Article by Urvashi Sarkar.
Editing by Mike Tatarski and Anrike Visser.
Fieldwork by Varsha Torgalkar.
Research by Peter Allen Clark.
Picture by Abhaya Gupta.
Illustrations by Imad Gebrayel.

This article was developed with the support of the Money Trail Project (

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