The Credit Guarantee Scheme for e-NWR Based Pledge Financing was formally inaugurated by the Union Food and Consumer Affairs Minister Prahlad Joshi on December 16, 2024 in New Delhi. This scheme aims farming to develop a corpus of Rs 1000 crore to give post-harvest loans using electronic negotiable warehouse receipts to farmers especially small and marginal ones.
Objectives and benefits
The main goal of the CGS-NPF is to avoid distress selling by farmers. Conventionally, farmers have been forced to market their products as soon as they are ready for harvesting an exercise that most of the time only serves to put up with cheap prices just enough to finance the next planting season. With e-NWRs farmers can make deliveries of their produce to accredited warehouses and then use this receipt to access credit facilities from other financial institutions. This also enables them to hold their produce and wait for better market prices when selling their produce, hence enhance their financial stability.
Key Features of the Scheme
- Credit Guarantee: It affords the guarantee cover for loans that farmers and traders obtain against the e-NWRs. This builds confidence to the extent that banks will easily provide pledge finance without any doubt.
- e-NWRs: Farmers take their produce to ware houses approved by the Warehousing Development and Regulatory Authority (WDRA) to obtain e-NWRs. For this reason, these receipts are used to secure loans from different banking institutions.
- Liberal Approach: Banks are advised to take generous approach to the recoveries regarding the loan amount and other finances in connection with e-NWRs. This also helps put more credit within easier reach of the farmers.
- Awareness and Outreach: The scheme is aimed not only at providing farmers with explanations of the advantages of pledge financing and training them to use e-NWRs. The development is made to rationalize the e-Kisan Upaj Nidhi web portal and regeneration of depository fees.
Effects on Funding of Agriculture
The CGS-NPF is estimated to bring drastic changes into agricultural credit systems since it will minimize the credit aversion by banks towards farmers. At present, post-harvest credit is said to be about Rs 40,000 crore of the total agricultural credit of Rs 21 lakh crore. The aim with the start of this scheme will be to achieve an amount of Rs 5.5 lakh crore for post-harvest credit in the next ten years. To implement this, the banking and warehousing sectors need to come up with a concerted plan toward increasing the financing of agriculture.
Statements from Key Officials
Continuing from the launch event, Minister Joshi stressed on the economic viability of farming and the need to have a sound food security system for India. He urged the banks to be liberal towards farmers and underlined that government supports farmers. Similarly, Additional Secretary Faiz Ahmad Kidwai and Secretary Sanjeev Chopra were on the same page with the potential of the scheme’s expansion and making farmers aware of this pigmentation.
The Indian farmers are very vital in supporting the economic facet especially in the agrarian economies. Although the size of food production and the potential cultivation of new food crops are crucial input factors which determine international trade and food security, farmers encounter several challenges at the marketplace which are detrimental to the existence of their businesses and the economy as a whole. The recently launched Credit Guarantee Scheme for e-NWR Based Pledge financing better known by its abbreviation CGS-NPF looks to mitigate part of these constraints and provide much-needed support to the farming community. Now let’s look at the different challenges to farmers illustrated below and how the above scheme will help the farmers.
Challenges Experienced by Farmers at the Market Place
- Price Volatility: Fluctuating prices are among the main issues that farmers experience within their operations. Market swings, problems of storage, speculation, and dumps buying results to another side to low prices and compel farmers to sell their outputs at throw away prices during a particular season.
- Distress Selling: Because farmers require cash for their immediate necessities and because it is hard for them to store harvested crops, vibrant distress selling takes place. The actual situation where farmers are forced to sell their produce soon after the harvest usually at a low price due to financial emergencies is referred to as off stress.
- Middlemen Exploitation: The farmers often have to bargain with a series of middlemen, cutting into the share of the revenue. Most of these middlemen factor prices and undermine farmers, who end up earning little despite high price for their crops in the market.
- Lack of Access to Credit: Poor credit remains a problem of credit for most people. High-interest rates from informal moneylenders and stringent lending criteria from formal financial institutions limit farmers' ability to secure loans. This affects their ability to finance quality inputs and technology.
- Inadequate Storage and Infrastructure: Lack of proper storage facilities causes post-harvest losses. The farmers cannot protect their produce adequately, and thereby they tend to spoil their produce and thereby, they have to negotiate with the buyers a very lower price due to poor bargaining power.
In what way will the CGS-NPF scheme benefit
The Credit Guarantee Scheme for e-NWR Based Pledge Financing (CGS-NPF) is aimed for expansion as a solution to these problems and to contribute to strengthen farmers’ financial security. Here’s how the scheme can make a difference:
- Reducing Distress Selling: This scheme offers farmers loans against the production that is stocked in approved warehouses hence cutting down on distress sales. Farmers can sell their produce the usual way and hold e-NWRs which are accepted by various financial institutions to secure loans, they can then wait for the right time to sell in the market.
- Ensuring Fair Prices: These storage of produce and access to credit in e-NWRs means that farmers are better placed to bargain for better prices. They are no longer compelled to take low prices as soon as the crops are harvested, thus better income and stability is achieved.
- Eliminating Middlemen Exploitation: The scheme promotes direct access to financial institutions, reducing reliance on middlemen. Through e-NWRs farmers are able to eliminate middlemen and suppliers and connect to the buyers and financial service providers, getting their fair share of the revenues.
- Access to Affordable Credit: Thus, the scheme offers credit guarantee to an extent to banks who are in a better position to extend credit facility to the farmers. This increases the availability of affordable credit to farmers to enable them procure the quality inputs, technologies, and infrastructure.
- Improving Storage and Infrastructure: With this scheme, the accredited warehouses are promoted and this promotes the construction or upgrade of better storage facilities. This helps in minimizing losses after the harvest by ensuring that produce is of high quality hence improving on its market value.
- Financial Inclusion and Awareness: The scheme also provides provisions on how awareness will be created among farmers about more pledge financing and e-NWR. It means that it is necessary to inform farmers on the possibilities of financial inclusion and the means of digital technologies.
Electronic Negotiable Warehouse Receipts (e-NWRs)
e-NWRs are electronic negotiable document which is given by the warehouse to the farmers or traders who store the agriculture produce in the registered or the legal warehouse. These receipts provide the legal title to the stored goods and may be used as collateral for borrowing from bankers and other financial intermediaries, e-NWRs is one of the ambitions of the drive towards innovation and digitalization of agricultural commodity supply chains, with the objectives of increasing structure, accountability, productivity, and availability of credit lines to producers.
Key Features of e-NWRs
- Digital and Secure: Fluxed from a paper-based document, e-NWR is stored electronically and hence cannot be forged or altered easily. The receipts can also be easily stored and sorted through using digital format as compared to the paper receipts.
- Negotiable Instrument: Like any other negotiable instruments, e-NWRs can be transferred from one party to another; the holder can sell or offer the receipt as collateral. It offers the farmers more ability to handle their produce and monetary aspect compared to the other feature.
- Collateral for Loans: e-NWRs may also be an excellent way through which farmers can borrow loans from the various banks and other financial institutions. This makes them to have built up access to credit so as to avoid the situation where they sell off their produce under pressure; they are in a position to wait for the right market to come when they need to sell their produce.
- Transparency and Traceability: The electronic system minimizes the inadequacies inherent in the flow of agricultural produce through the supply chain by promoting transparency and ease of tracing the flow of products. This tends to facilitate monitoring of the quantity and quality of the stored produce, thereby minimizing disagreements, and generating a fair supply chain.
- Regulated and standardized: e-NWRs are issued by warehouses registered with the Warehousing Development and Regulatory Authority (WDRA), ensuring that the warehouses meet specific standards and regulations. This brings extra security to the entire process for the farmers as well as the financial institutions.
Benefits
The introduction of e-NWRs has several benefits for farmers and the agricultural sector:
- Access to Credit: Farmers are able to secure loans more often when they use e-NWRs as collateral; its the same approach helps farmers to solve their financial problems and invest in the quality inputs and technologies.
- Market Flexibility: e-NWRs enable farmers to hold their produce and sell later at a better price enabling them to get better returns on their produce.
- Reduced Risk: It is more secure and flexible than paper-based receipts because it cannot be forged, stolen or torn, meaning more assurance of farmers.
- Efficient Supply Chain: Increased transparency and traceability aim at making the supply chain in agriculture and production of foodstuffs effective and the shortest time possible in getting to the market in the best quality as intended.
Warehousing Development and Regulatory Authority (WDRA)
WDRA is state corporate independent body, Owned by the Government of India and functioning under the act Warehousing (Development and Regulation) Act, 2007. Its main objectives are to progress and supervision the warehouses in India for making negotiable warehouse receipts and for encouraging the scientific management of the warehouses.
Key Functions of WDRA
- Regulation and Development: Such organizational structure means WDRA to be charged with the responsibility of regulating and developing warehouses in the country. This encompasses establishing industrial standards for creating the necessary infrastructures of a warehouse, facilitating the adherence to regulatory requirements and advancing new effective ways of warehousing.
- Negotiable Warehouse Receipts (NWRs): An important function of WDRA is to endorse the creation of Negotiable Warehouse Receipts (NWRs). These receipts act as a proof of obligation of stored goods and can easily be produced as security for loans from banks and other financial institutions.
- Accreditation of Warehouses: WDRA consists of those warehouses which have been accredited by WDRA meeting certain standard and criteria fixed by the organization. The issuance of the NWRs is done only by the accredited warehouses to guarantee that the goods stored are secure and of good quality.
- Promoting Financial Inclusion: Through the support that WDRA gives to farmers and traders through the issuance of NWRs the farmers and traders can access credit facilities. This financial inclusion is essential for enhancing the illiquidity situation across the rural scene and enhancing agricultural growth.
- Enhancing Supply Chain Efficiency: It has been noted that through the endeavours being made by WDRA in terms of formulating and implementing standard and standard-setting mechanisms, warehousing and other practices can readily result to better supply chain. This in turn results into lower post-harvest losses, enhanced quality, and market for the produced crops.