India: Rural Cooperative Credit Restructuring and Development Program

Sovereign Project | 36343-013

Summary

The goal of the Program is to develop a sustainable CCS and the objective is to help the Government carry out its CCS reform agenda. Its impact is enhanced income and employment growth for the rural poor, while its purpose is to improve rural households' access to affordable financial services through an efficient CCS. The scope is comprehensive CCS reform in five states (from among Andhra Pradesh, Madhya Pradesh, Maharashtra, Rajasthan, Gujarat, and Orissa) that have concurred with the reform agenda. The estimated adjustment cost of implementing the Program in the five participating states (PS) is about $1.43 billion.

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Project Name Rural Cooperative Credit Restructuring and Development Program
Project Number 36343-013
Country India
Project Status Closed
Project Type / Modality of Assistance Loan
Technical Assistance
Source of Funding / Amount
Loan 2281-IND: Rural Cooperative Credit Restructuring and Development Program (formerly Rural Finance -Cooperative Banks - Restructuring and Development Program Loan)
Ordinary capital resources US$ 1,000.00 million
Loan: Rural Cooperative Credit Restructuring and Development Program (formerly Rural Finance -Cooperative Banks - Restructuring and Development Program Loan)
KfW Bankengruppe US$ 151.80 million
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Sector / Subsector Finance - Inclusive finance
Gender Equity and Mainstreaming Some gender elements
Description The goal of the Program is to develop a sustainable CCS and the objective is to help the Government carry out its CCS reform agenda. Its impact is enhanced income and employment growth for the rural poor, while its purpose is to improve rural households' access to affordable financial services through an efficient CCS. The scope is comprehensive CCS reform in five states (from among Andhra Pradesh, Madhya Pradesh, Maharashtra, Rajasthan, Gujarat, and Orissa) that have concurred with the reform agenda. The estimated adjustment cost of implementing the Program in the five participating states (PS) is about $1.43 billion.
Project Rationale and Linkage to Country/Regional Strategy

While overall gross domestic product growth has been robust in recent years, it has not been broad-based or inclusive. Of particular concern in this regard is the poor performance of agriculture, which has been on a long-term declining growth trend. With about two-thirds of the population deriving their livelihood from agriculture and nearly three quarters of the poor (or nearly 200 million) living in rural areas, the impact of the decline in agricultural performance on the quality of life of the poor has been severe. The plight of the rural poor has been thrust into the international spotlight in recent years as a result of suicides by highly indebted farmers and growing rural unrest in many areas.

Development experience has confirmed that rapid, broad-based, and labor-intensive economic growth is the best means to reduce poverty. Broad-based agricultural growth offers enormous opportunities for reducing rural poverty by expanding on- and off-farm employment. Public policies, therefore, must continue to reduce the deterioration in the rural-urban terms of trade, strengthen social and economic infrastructure in rural areas, and revamp rural finance delivery systems.

While finance is a critical input for strengthening the rural economy and agricultural production base, the response of the formal rural finance system has been increasingly inadequate. The rural finance paradigm for the most part has been driven by credit expansion through government-owned or -controlled financial institutions, particularly within the CCS comprising primary agricultural credit societies, district central cooperative banks (DCCB), and state cooperative banks. While a substantial network of CCS institutions and an enhanced supply of services were established as a result, the CCS has neither been able to effectively address the demand and supply gaps in rural finance, nor function as a sustainable financial intermediary.

Although organized on the principles of self-governance and self-reliance, the CCS has fundamental policy, governance, legal, and institutional problems that have impaired its solvency, sustainability, and efficiency. As a result, the intended objective of enhancing rural financial intermediation, especially to the assetpoor and disadvantaged, has only been partially realized. The prevailing policy and legal environment for the CCS has increased the tolerance for poor financial and operational performance and prevented CCS members from having their say in the management of the CCS institutions.

Rapid rural finance outreach for poverty reduction and improved living standards can be significantly facilitated by revitalizing the CCS. CCS reform is critical to rural transformation because it has an all India membership base of 135 million and has links to the broader cooperative movement comprising processing, marketing, input distribution, dairy, and weaving. Reforming the CCS will provide the institutional base for potentially significant changes in the rural economic and sociopolitical landscape. Legal, regulatory, governance, and institutional reforms are required to remove these deep-seated obstacles to enable the CCS to provide more efficient and affordable financial services to the poor.

Impact Enhanced income and employment growth for the rural poor in the participating states (PSs)
Project Outcome
Description of Outcome Improved access by rural households to affordable financial services through a sustainable and efficient CCS in the PSs
Progress Toward Outcome
Implementation Progress
Description of Project Outputs

1. Establishing a Policy Reform and Implementation Framework

a. A nationwide policy framework for strengthening the short-term CCS

2. Building a Facilitating Legal, Regulatory and Governance Framework

a. A conducive legal framework for autonomous CCS operations

b. Orderly development of CCS and enhanced depositor protection

c. Democratic character of the CCS restored and governance enhanced

3. Institutional Reforms for Sustainability

a. International best practices mainstreamed in the CCS

b. PACSs strengthened to provide stronger foundation for the CCS

c. DCCBs reformed into sustainable institutions

d. SCBs reformed to effectively perform as apex institutions supporting efficiency and sustainability of the CCS

Status of Implementation Progress (Outputs, Activities, and Issues)
Geographical Location Andhra Pradesh, Madhya Pradesh, Maharashtra, Rajasthan, Gujarat, and Orissa
Safeguard Categories
Environment C
Involuntary Resettlement C
Indigenous Peoples C
Summary of Environmental and Social Aspects
Environmental Aspects An environmental assessment of the policy reforms was undertaken and no potential environmental impacts are expected.
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design The project preparatory technical assistance conducted various levels of participatory stakeholder analysis.
During Project Implementation The reformed CCS will provide a forum for discussion of local issues, mobilize local resources, build up bargaining and claim-making power of local communities to widen the options for income-generating activities, and enhance local control over factors of production. Improved access to rural finance services through the CCS will bring the rural poor into the economic mainstream. Furthermore, the Program will support social intermediation to empower the rural poor, including rural women, for effective access to rural finance services.
Business Opportunities
Consulting Services No consulting services required
Procurement The proceeds of the policy loan will be used to finance the full foreign exchange costs (excluding local duties and taxes) of imports produced in, and procured from, ADB' s member countries, other than those specified in the list of ineligible items and imports financed by other bilateral and multilateral sources and from countries that are not ADB members.
Responsible ADB Officer Donald J. Lambert
Responsible ADB Department South Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, SARD
Executing Agencies
Ministry of Finance (Old)CAAA@ALPHA.NIC.IN*
Department of Economic AffairsMinistry of Finance
North Block
New Delhi-110001, India
Timetable
Concept Clearance 23 Nov 2005
Fact Finding 09 Aug 2004 to 30 Aug 2004
MRM 12 Sep 2006
Approval 08 Dec 2006
Last Review Mission -
PDS Creation Date 31 Jan 2007
Last PDS Update 28 Sep 2012

Loan

Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 151.80 Cumulative Contract Awards
ADB 0.00 - 0.00 0.00 %
Counterpart 0.00 Cumulative Disbursements
Cofinancing 151.80 - 0.00 0.00 %

Loan 2281-IND

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
08 Dec 2006 11 Dec 2006 21 Feb 2007 30 Jun 2010 30 Jun 2013 30 Jun 2013
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 1,151.80 Cumulative Contract Awards
ADB 1,000.00 08 Dec 2006 800.00 0.00 100%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 151.80 08 Dec 2006 800.00 0.00 100%
Status of Covenants
Category Sector Safeguards Social Financial Economic Others
Rating Satisfactory - - - - Satisfactory

TA 4887-IND

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
08 Dec 2006 11 Dec 2006 11 Dec 2006 31 Dec 2007 31 Dec 2009 -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
0.00 0.00 0.00 0.00 0.00 0.00 0.00 08 Dec 2006 51,397.42
Status of Covenants
Category Sector Safeguards Social Financial Economic Others
Rating Satisfactory - - - - Satisfactory

Safeguard Documents

See also: Safeguards

No documents found.

Evaluation Documents

See also: Independent Evaluation

No documents found.


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