What is the function of NABARD? What is its Credit guarantee scheme for NBFC-MFIs?
Published: August 26, 2020
The National Bank for Agriculture and Rural Development (NABARD) announced the introduction of a dedicated debt and credit guarantee scheme for non-banking financial companies and microfinance institutions to make sure the abundant flow of credit in COVID-19 affected rural areas.
Functions of NABARD
National Bank for Agriculture and Rural Development is the apex development finance institution for policymaking, planning, and operations in the sector of credit for agriculture and other economic activities in rural India. It was founded in 1982 and headquartered in Mumbai.
- It manages the developmental activities of the cottage industry, small scale industry, and village industry.
- It supports integrated development.
- It provides assistance to the financial institutions which are associated with financing the rural sector.
Credit guarantee scheme
A credit guarantee scheme provides credit risk alleviation to the lenders through absorbing a portion of the losses suffered by the lender on the loans made to Small and medium-sized enterprises in case of default, typically in return for a fee.
- NABARD has signed an agreement with Vivriti Capital and Ujjivan Small Finance Bank to formulate the credit guarantee program.
- Access to sustainable finance for microenterprises and low-income households is going to be easily available.
- The program will cater to over 1 million households across 28 states.
- The pooled loan issuance will bring down the costs of capital as the partial credit protection of NABARD provides more ease to the lending bank and the rating helps the lender to achieve its desired targets.
The non-banking financial companies and microfinance institutions received around Rs 2,000 crore payout from NABARD so far since the initial stage of a pandemic outbreak. It has also created special liquidity lines.