National Bank for Agriculture and Rural Development (NABARD)

NABARD is the apex DFI dedicated to building rural and agricultural prosperity. Established on 12 July 1982 under the NABARD Act 1981, it was created by transferring the agricultural credit functions of RBI and the refinance functions of the erstwhile Agricultural Refinance and Development Corporation (ARDC) into a new institution.

NABARD’s formation was the outcome of the Sivaraman Committee recommendations, which recognized the need for a focused institution to drive rural credit and development. It began operations with an initial capital of ₹100 crore (contributed by RBI and Government), and today it is fully owned by the Government of India (the RBI’s stake was gradually transferred to the central government, making NABARD 100% government-owned by 2019).

NABARD operates under the Ministry of Finance (Department of Financial Services). As a development finance institution, NABARD’s primary focus is to strengthen the rural economy by meeting the credit needs of agriculture and rural development.

Mandate and Functions

NABARD’s mandate is broad yet centered on enabling rural development. Its key objectives include:

• Facilitating Credit Flow to Agriculture & Rural Sectors: Serve as the apex agency to ensure adequate credit for agriculture (including farm activities and off-farm rural activities) and other economic activities in rural areas. NABARD works to promote sustainable agriculture and rural prosperity through credit support.
• Refinance Institution for Rural Credit: Provide refinancing facilities to all eligible institutions engaged in extending agricultural and rural credit – this includes cooperative banks, regional rural banks (RRBs), commercial banks and other approved financial institutions. By refinancing, NABARD supplements their resources so that they can lend more to farmers, rural artisans, cottage industries, etc.
• Development & Promotional Functions: Coordinate and promote integrated rural development through initiatives beyond credit – such as developing infrastructure, introducing new technologies, supporting farm innovation, and nurturing microfinance institutions and self-help groups. NABARD is tasked with promoting sustainable rural development models and financial inclusion in villages.
• Supervision of Rural Financial Institutions: Act as a supervisory authority for certain rural financial institutions. NABARD oversees and inspects RRBs and cooperative banks (state and district co-op banks) to ensure the health of the rural credit system. This supervisory role, delegated by RBI, helps maintain confidence and efficiency in institutions that are critical for rural credit delivery.
• Building Rural Financial Infrastructure: Support the establishment and capacity-building of regional rural banks, cooperatives, and other rural financial intermediaries. NABARD provides training to bank staff, helps in the computerization of credit cooperatives, and overall works to strengthen the credit delivery mechanisms in rural areas.

Key Functions of NABARD

Refinance Operations

NABARD’s core function is to refinance smaller banks and financial institutions for lending in priority areas, particularly agriculture. When rural or cooperative banks provide crop loans or agricultural term loans to farmers, NABARD reimburses a large portion of these loans at concessional rates, which replenishes bank funds and encourages increased lending to agriculture.

NABARD provides short-term credit refinance for crop loans and seasonal agricultural operations, and long-term refinance for investments such as tractors, plantation development, irrigation projects, and rural housing.

Direct Finance

Although NABARD primarily functions as a refinancing institution, it also undertakes direct lending in specific cases. It provides loans directly to state governments and rural entities for development projects. A key example is lending under the Rural Infrastructure Development Fund (RIDF) to support rural infrastructure projects such as irrigation canals, rural roads, bridges, and drinking water schemes. NABARD also finances warehousing infrastructure through the Warehouse Infrastructure Fund and may lend directly to district cooperative banks and other approved financial institutions for on-lending when necessary.

Rural Infrastructure Development

Managing funds for rural development is a major function of NABARD. The RIDF, established in 1995, uses contributions from commercial banks that fail to meet priority sector lending targets and channels these funds to state government rural infrastructure projects through NABARD. In addition, NABARD manages specialized funds such as the Long-Term Irrigation Fund, Micro-Irrigation Fund, and Dairy Processing Infrastructure Fund, which support specific government initiatives in rural areas. By financing infrastructure like irrigation, roads, and storage facilities, NABARD helps create an enabling environment for agriculture and rural businesses.

Promotional & Developmental Programs

NABARD plays a significant role in promotional and grassroots development initiatives. It pioneered the Self-Help Group (SHG)–Bank Linkage Programme in the early 1990s, linking informal women’s SHGs with banks to facilitate savings and credit access, making it one of the largest microfinance movements in the world.

NABARD provides grant support and training for forming SHGs and Joint Liability Groups (JLGs) to promote financial inclusion. It also supports skill development, rural entrepreneurship in crafts and small industries, Farmer Producer Organizations (FPOs), watershed development programs to improve irrigation and land productivity, and tribal development initiatives such as the Wadi project for orchard-based farming. These activities involve grant assistance and technical guidance, highlighting NABARD’s role as a development catalyst beyond finance.

Regulatory/Supervisory Role

NABARD ensures the sound functioning of rural cooperative banks and Regional Rural Banks (RRBs). It conducts inspections and audits, provides recommendations for improvement, and offers financial assistance for recapitalization or restructuring when required. These efforts help maintain the stability and effectiveness of rural credit institutions that serve as last-mile lenders. Although regulation of cooperative banks was strengthened under the RBI in 2020, NABARD continues to perform a critical supervisory and developmental role.

Credit Planning and Coordination

NABARD works closely with the RBI and the government in credit planning for agriculture and allied sectors. It helps prepare annual credit plans and participates in district- and state-level planning through District Consultative Committees and State Level Bankers’ Committees. NABARD also compiles rural credit data, conducts research, and recommends policy measures to improve the reach, alignment, and effectiveness of rural finance.

NABARD’s Role in Rural Development

Over the decades, NABARD has become synonymous with rural development finance in India. Some of its notable contributions and roles include:

Strengthening Cooperative Credit

Over the decades, NABARD has played a key role in strengthening and reviving the cooperative credit structure in India. It has implemented programs for reforming and computerizing Primary Agricultural Credit Societies (PACS), which are the smallest cooperative lending units. NABARD has also supported the recapitalization of financially weak cooperatives in partnership with the government, ensuring that farmers continue to have access to credit at the village level.

Kisan Credit Card & Financial Inclusion

NABARD was closely involved in the design and expansion of the Kisan Credit Card (KCC) scheme, launched in 1998, which provides farmers with hassle-free revolving credit for crop-related needs. The KCC scheme significantly simplified credit access for millions of farmers. NABARD’s broader financial inclusion efforts include supporting rural banking technology, such as financing core banking solutions for Regional Rural Banks (RRBs), promoting mobile banking, introducing RuPay Kisan Cards, and expanding institutional credit access to remote and underserved areas.

Microfinance and Women’s Empowerment

Through the SHG–Bank Linkage Programme, NABARD has helped organize over 12 million women into self-help groups, enabling access to affordable credit and promoting a culture of savings. This initiative has had a major social impact by empowering women, reducing dependence on moneylenders, and financing numerous rural micro-enterprises such as tailoring units, dairies, and handicrafts. NABARD also established the Microfinance Development and Equity Fund to support microfinance institutions and encourage innovative approaches to reaching the unbanked population.

Infrastructure Funding

Infrastructure projects financed under NABARD’s Rural Infrastructure Development Fund (RIDF) and other funds have resulted in the construction of thousands of kilometers of rural roads, minor irrigation structures that brought additional land under cultivation, rural bridges connecting villages to markets, and social infrastructure such as health centers and school buildings. These investments have boosted rural economic activity and improved livelihoods. In particular, RIDF-funded irrigation projects have enhanced farm productivity and increased cropping intensity in many states.

Climate and Sustainable Agriculture

NABARD has emerged as a key implementing agency for climate change–related agricultural projects. It serves as the National Implementing Entity for the Green Climate Fund and the Adaptation Fund in India, channeling international climate finance into projects focused on climate adaptation. These include initiatives to improve farmers’ climate resilience through sustainable agricultural practices, watershed management, and related interventions, adding a sustainability dimension to NABARD’s development role.

Subsidiaries for Specialized Functions

To expand its reach and address specialized needs, NABARD operates through several subsidiaries. NABARD Consultancy Services (NABCONS) provides consultancy for agriculture and rural development projects; NABARD Financial Services (NABFINS) focuses on microfinance lending; NABKISAN Finance supports producer organizations and agricultural initiatives; and NABVENTURES functions as a venture capital fund for agriculture and rural startups. These subsidiaries complement NABARD’s core functions by supporting areas such as agribusiness investment, microfinance, and climate-related projects.

Important Schemes/Initiatives under NABARD:

Rural Infrastructure Development Fund (RIDF)

The Rural Infrastructure Development Fund (RIDF) has been operational since 1995 and finances rural infrastructure projects across India. It deploys substantial funds every year to support rural development projects in all states, playing a major role in building irrigation facilities, roads, and other rural infrastructure.

SHG–Bank Linkage Programme

The SHG–Bank Linkage Programme is NABARD’s flagship microfinance initiative, launched in 1992. It focuses on linking self-help groups with banks to provide access to savings and credit, making it one of the most significant microfinance programs in the country.

Joint Liability Group (JLG) Scheme

The Joint Liability Group (JLG) scheme, launched in the mid-2000s, promotes group-based lending for tenant farmers and sharecroppers. By forming credit groups with joint liability, the scheme improves access to formal bank credit for farmers who may lack traditional collateral.

Farmers’ Producer Organizations (FPO) Promotion

NABARD implements a dedicated program to promote and credit-link Farmers’ Producer Organizations (FPOs). This initiative helps small and marginal farmers aggregate their produce, strengthen their market access, and improve price realization through collective marketing and better bargaining power.

Umbrella Programme for Natural Resource Management

The Umbrella Programme for Natural Resource Management, implemented in partnership with KfW (Germany), has been operational since the early 2000s. It focuses on funding community-based watershed development projects and tribal development initiatives, supporting sustainable management of natural resources.

Digital Initiatives

NABARD supports digital transformation in rural finance by helping rural financial institutions adopt Core Banking Solutions and digital banking services. It also facilitates the rollout of Aadhaar-linked payment systems in rural areas to enable Direct Benefit Transfers (DBT) and improve financial inclusion.

Credit Enhancement

NABARD has introduced credit guarantee schemes to encourage banks to lend to specific sectors such as micro-irrigation and warehouse financing. These schemes reduce lender risk by securing a portion of the credit exposure, thereby improving credit flow to these sectors.

NABARD, in essence, is the backbone of India’s rural credit system. By combining its financial power (through refinance and loans) with developmental interventions (capacity building, infrastructure funding, microfinance, etc.), NABARD has significantly contributed to higher agricultural productivity, rural employment, and the overall improvement of rural livelihoods.