U. Tietze
Fishing Technology Service
Fishery Industries Division
FAO
1. BACKGROUND AND STATUS OF ARTISANAL FISHERIES AND RURAL FINANCE IN INDIA
Stimulated by a growing demand for fish for domestic consumption and export, the artisanal fishing economy along the east coast of India - once subsistence-oriented - has developed into a market-oriented economy incorporating monetary features. Artisanal marine fishing still accounts for a large part of India's total marine fish production, while the number of mechanized boats has been steadily increasing. A wide variety of fishing methods is employed - both active and passive - in the exploitation of pelagic and demersal resources, although limited to the inshore ranges of the continental shelf. With regard to fishing equipment, natural fibres and materials have been replaced by synthetic ones wherever technically feasible and economically viable.
To cater to the financial needs of the growing fishing economy, a system of informal credit has been developed. This system, however, has a number of disadvantages for fisherfolk due to high interest rates and exploitative terms and conditions regarding the disposal of fish. Furthermore, informal credit sources are limited and unequally distributed, leading to regional shortcomings and disparities. The informal credit delivery system, however, has some important advantages, such as quick delivery and flexible loan conditions.
At the beginning of the 1970s a number of financial and other institutions were created to extend rural credit. A multi-agency approach aimed to provide a variety of options to rural people and to ensure the efficiency of credit institutions through built-in competition. At the same time a large bank branch expansion programme was launched in rural areas. Regional rural banks have been sponsored by nationalized commercial banks to reach the remotest areas. Simultaneously the cooperative credit structure has been strengthened. Besides the adoption of a multi-purpose approach, new institutions and agencies were created to channel rural credit. Agencies such as the Block Development Office, the Small Farmer Development Agency and the District Rural Development Agency and programmes such as the Integrated Rural Development Programme and the Economic Rehabilitation of the Rural Poor, were introduced to provide the necessary institutional arrangements to achieve the above-mentioned targets.
The Reserve Bank of India, as the central bank, has regularly financed agriculture since the first Five Year Plan. Refinance for agricultural loans has been provided, since the 1960s, by a special branch of the Reserve Bank of India, the Agricultural Refinance and Development Corporation. The range of activities and assets applicable for refinance has gradually been extended beyond agriculture and covers a variety of rural activities. The corporation itself became active in drawing up projects for rural development.
During the early 1980s the Agricultural Refinance and Development Corporation was converted into a separate bank known as the National Bank for Agriculture and Rural Development (NABARD) to refinance entire credit packages for agriculture, rural and village industries.
Until very recently, however, growth processes in rural credit excluded artisanal marine fisherfolk. The traditional cooperative system was not successful among fisherfolk, nor did it emerge as a viable form of organization. Commercial banks with very few exceptions did not have the required expertise and had no focus on artisanal fishing. The reasons for this include the remote location of fishing villages and the low social status of fisherfolk and fishing compared to agriculture.
Only during the past few years have some artisanal fisherfolk been included in credit schemes under rural development programmes. The results of these programmes have not always been encouraging, particularly as far as loan recovery is concerned. Common reasons for the failure of credit schemes are:
lack of proper coordination between the various agencies (uncoordinated multi-agency approach), resulting in delays, lack of monitoring and supervision, and poor quality of items supplied to the borrowers as credit in kind;
single-purpose character of the credit package approach, and the inflexible uniformity of credit programmes, and
social welfare character and lack of participation of target groups.
2. APPROACH IMPLEMENTATION AND RESULTS OF THE ARTISANAL FISHERIES CREDIT SCHEME IN ORISSA, INDIA
2.1 Objectives and approach
The Artisanal Fisheries Credit Scheme in Orissa was designed and initiated by the FAO Bay of Bengal Programme for Fisheries Development (BOBP). While the BOBP organized training and assisted in the monitoring and coordination of the scheme, the banks concerned provided the entire finance from their own resources.
The fisheries credit scheme aimed at demonstrating how artisanal marine fisherfolk can be included in the short- and medium-term lending of coastal bank branches, thus developing a new group of bank clients. It considered artisanal marine fishing as an economically and financially viable activity at prevailing interest rates for small and marginal farmers and fisherfolk (about 12%), provided banks can extend loans:
in appropriate amounts (neither over nor under finance)
for a variety of needs
at short notice
at the appropriate time
on appropriate repayment conditions.
It was assumed that if banks were able to improve their services in these ways they would have a good chance of partially replacing private money lenders and other informal financiers who charge interest rates up to 120 per cent per annum.
Since it was felt that the uniform and simultaneous introduction of productive assets to a large number of people in the same area - as usually happens under rural credit schemes - does not suit the characteristics of a complex production process, the scheme aimed at giving loanees sufficient freedom to choose the particular craft or gear, or the particular craft/gear combination, which suits her/his requirements. It also gave the bank sufficient freedom to select the borrower, after a proper appraisal of the loan application.
2.2. Preparatory arrangements and operational features
To make rural credit a tool to increase productivity and improve the living conditions of the community, an area and cluster approach was adopted. Village and household surveys were carried out to determine human resources, the quantity and type of productive assets presently operated, ownership and working patterns, and sharing systems. The surveys also covered supporting activities concerning input supply, storage, processing and marketing, and infrastructural facilities, such as water, sanitation, communication and education. The idea was to also include at a later stage supporting and peripheral activities under the scheme, either as individually-owned or community assets.
With regard to institutional preparation, cooperation was established between bank managers, bank field officers and fisheries extension officers. Likewise, horizontal cooperation was initiated at higher levels within the banks and the fisheries department hierarchy.
Training was provided to both fisheries and banking officials in fisheries economy, fishing methods and technology, the social organization and culture of traditional fisherfolk communities, identification of areas and borrowers, appraisal and processing of loan applications. Numerous workshops were held and field trips made, involving potential borrowers and representatives of the fisherfolk, both while preparing formats and procedures for the scheme and later while reviewing ongoing credit disbursement operations and repayment.
During the preparatory phase, a comprehensive marine fisheries scheme was designed. It included 20 different types of craft, gear, and supporting and peripheral activities applicable for finance. It provided the technical specifications of each craft and gear with details of life span, period, area and mode of operation, and sharing system. It listed capital costs, annual recurring expenses, annual income and surplus, expected annual rate of return on investment, expected net value added and suggested appropriate repayment schedules.
To facilitate and standardize the appraisal of loan applications and to identify and appraise supportive and peripheral credit needs, a special ‘village profile’ and ‘activity form’, used as annexes to the loan application form, were designed and extensively used during the credit operations.
Schedules were drawn up for joint fortnightly field visits by fisheries extension officers and bank officers to collect loan repayment instalments. Field checks by headquarters personnel were also scheduled and these schedules strictly respected.
Special forms to evaluate the processing of loan applications at branch level, loan disbursement and loan repayment were designed and used. With regard to loan documentation, accounting, arrears control and credit guarantee arrangements, the normal procedure in use by the participating banks was implemented.
The artisanal fisheries credit scheme covered the entire coastline of the Indian east coast state of Orissa (330 km) and involved 29 bank branches of nine nationalized banks, supported by 15 marine fisheries extension centres. Loan disbursements by participating banks were refinanced by the National Bank for Agriculture and Rural Development.
2.3. Implementation and results of the credit scheme
Preliminary and preparatory activities such as surveys and workshops began in 1982 and the first loans were disbursed in October 1983. Until 1986, the artisanal fisheries credit scheme was considered a pilot activity, supervised and coordinated by the BOBP. While the BOBP organized and funded training activities and surveys, and provided technical assistance expertise, the participating banks provided all loan funds from their own resources.
Upon termination of the BOBP's involvement, the participating banks continued the credit programme on their own, thereby assisting in the achievement of one of pilot scheme's objectives: to establish regular credit facilities for artisanal marine fisherfolk, meeting the criteria of simplicity, timeliness and need orientation.
Regarding the implementation and results of the credit scheme, two main phases can be distinguished: Phase I from October 1983 to April 1986, during which the artisanal fisheries credit scheme was coordinated and supervised by BOBP, and Phase II, during which the credit scheme was continued by the participating banks without BOBP support.
The results of the credit scheme are shown in tables 1 and 2 below. The results at the end of Phase II are presented in terms of loan disbursements (number of loans and amounts) and recoveries as of 30 June 1988, while the result of Phase I are presented in terms of loan disbursements and recoveries as of 30 April 1986.
| Loan amount | % of loan recovered | |||
|---|---|---|---|---|
| Region | disbursed | due for recovery | recovered | |
| Balasore district | 685 040 | 170 402 | 153 676 | 90 |
| Cuttack district | 1 551 100 | 163 892 | 179 681 | 110 |
| Puri district | 1 707 357 | 416 261 | 415 251 | 100 |
| Gangam district | 2 136 308 | 427 607 | 420 368 | 89 |
| Total | 6 079 805 | 1 223 162 | 1 168 976 | 97 |
| Loan amount | |||||
|---|---|---|---|---|---|
| Region | No.of loans | disbursed | due for recovery | recovered | % of loan recovered |
| Balasore district | 559 | 1 665 900 | 737 605 | 594 367 | 81 |
| Cuttack district | 501 | 2 773 100 | 1 012 944 | 368 697 | 36 |
| Puri district | 776 | 3 288 839 | 1 485 574 | 1 207 193 | 81 |
| Gangam district | 1 264 | 3 673 925 | 1 816 925 | 1 363 007 | 75 |
| TOTAL | 3 100 | 11 401 764 | 5 052 247 | 3 533 264 | 70 |
With regard to the impact of the credit programme in terms of
net value added and total catch generated by the investment, it has
been calculated that during the pilot phase of the project (Phase I)
the total marine catch generated by the investment of Indian
Rs 6 079 805 was approximately 12 000 tonnes, while the net value
added per rupee of investment was Rs. 3.4, resulting in a total net
value added of Rs 20 671 337.
1 Rs. = Indian Rupees
When comparing the results and achievements during Phases I and II of the credit scheme, the decline of the loan repayment rate from 97 per cent to 70 per cent is notable. The decline of the recovery rate should be seen, however, in the context of loan recovery rates of conventional state-sponsored rural credit subsidy programmes, operating in the same villages, which are around 20-25 per cent. It should also be considered that the amount due for recovery at the end of Phase II was more than four times higher than the amount which was due for recovery at the end of Phase I, placing a heavier burden on the recovery mechanism and making it more difficult to maintain high operational standards.
The excellent loan recovery rates at the end of Phase I of the credit scheme can be mainly attributed to the following characteristics:
loans were available for the most urgent purposes at short notice;
beneficiaries were selected carefully and loan applications were financially and technically appraised, with the cooperation of fisheries and bank officers, and
loan use and repayment were closely supervised and monitored through joint visits of bank and fisheries officers to borrowers.
It was thus demonstrated that a non-subsidized credit scheme catering to clients of dubious credit-worthiness can be viable and recoverable.
The relative decline of the loan recovery rate during Phase II of the credit scheme - according to an evaluation carried out by BOBP - was caused by a number of operational shortcomings, briefly analysed below, not by changes in the economic context or other external factors.
The decline of the loan recovery rate was quite marked in Cuttack district, while it was moderate in the other three districts. It can be explained to a certain extent by the fact that during Phase II the loan amount due for recovery more than quadrupled that of Phase I. In addition to the increased magnitude of the credit operation, there were a number of other reasons for declining loan repayments, which are summarized below by district.
Balasore District. The loan recovery rate was 81 per cent, while at the end of Phase I it had been 90 per cent. The branches of the regional rural bank (Balasore Gramya Bank) provided the bulk of the finance, about three quarters of the total. The problem villages were mainly in the Gopalpur, Mandari and Kasafal areas, and to some extent in Bideipur and Channua.
Wherever the recovery rate was low, it was attributed to that season's drought and poor catches. This seemed rather dubious to the evaluation mission as in neighbouring areas it was found that the recovery rate was good. The actual reasons for deterioration of loan recovery were found to be:
inadequate follow-up and rare joint visits to the village by bank and fisheries officers;
bank/fishery officers burdened with high targets for various state-sponsored subsidy schemes, with little time to monitor repayments under the BOBP credit programme;
the transfer of bank managers, field officers of the bank and fisheries extension officers to other duty stations;
delay in the processing of applications because of the above reasons;
lack of information to fishermen with regard to the differences between the state-sponsored subsidy schemes and the BOBP scheme (locally called a 'direct scheme');
lack of utilization of the monthly fishing holidays at new and full moon to improve personal contact with borrowers, and
the practice in one of the bank branches visited of giving loans in cash without a system of verification of utilization.
Cuttack District. This district had the lowest loan recovery rates during Phase II; the recovery rate had declined rapidly. About Rs. 1.5 million have been made available to one village, Sandkhud (Paradip), by five bank branches out of the eight branches involved in the project over the whole area. Due to poor recovery rates, applications were not sponsored by the Department of Fisheries in 1987/1988 to these bank branches. However, the State Bank of India was forced through local political pressure to examine the pending applications of 1986/1987 and sanction them during 1987/1988. The main reasons for the low repayment rate were:
interference in the form of local politics; some village leaders discouraged the loanees from effecting repayment in order to entice them into their respective groups. Some defaulters have set a bad example to the others and spread rumours that they would be evacuated from the village and that the government would write off all such loans at the approaching elections;
inadequate supervision and absence of joint visits by bank and fishery officers;
influence of middlemen/village leaders in the promotion of the interests of some applicants bypassing the scrutiny of the fishery officers;
changes in the methodology of loan disbursements, such as direct crediting of the loan amount into the loanee's account instead of effecting payment by banker's cheque to the supplier of fishing requisites;
production of fake receipts for acquisition of assets; clandestine disposal of assets acquired; poor physical verification of the assets by bank officers;
lack of concerted effort by the bank/fishery officers to bring pressure on the loanees;
remoteness of the villages, and
receipt of inferior twine for the fabrication of nets, eventually leading to the disposal of the same.
Puri District. The overall loan recovery rate was found to be 81 per cent, while it had been 100 per cent at the end of Phase I. The performance of two bank branches had declined because of inaccessibility of the village in one case, and migration to other areas of some of the loanees in another case. The performance of the State Bank of India, Puri, has been so good that the bank developed confidence in the credit-worthiness of the fisherfolk to the extent of advancing second loans to 15 of the earlier borrowers without reference to fishery officers. Bank officers visited the villages regularly.
It was also discovered that the recovery performance would have been better had the Fisheries Extension Officer (FEO) not been over-burdened with additional work, with the result that his contribution to the growth and sustenance of the credit scheme was considerably reduced.
Ganjam District. By far the largest number of beneficiaries were from this district. The overall recovery rate of 75 per cent was slightly lower than that of its neighbouring district of Puri. Most of the borrowing was from three bank branches serving the areas of Gopalpur-at-sea and the nearby Berhampur. The excellent performance of the Canara Bank, Berhampur, was due in particular to the cooperation of the fisherfolk of two of the three villages involved. About 70 per cent of the fishermen of the two villages have benefitted under this scheme. There are more boat owners; the beach seines have practically disappeared in favour of more lucrative returns from the prawn gillnets available under the credit scheme. About 20–25 fishermen were availing themselves of the second instalment of the loan, having liquidated the first. Thus, in spite of a poor recovery rate in the third village, which is isolated and whose fisherfolk are less cooperative, the bank was able to maintain a 100 per cent or more recovery rate; the other villagers paying their debts in advance of the due date compensated for the defaulting by the third village's fisherfolk. It is because of the reduced target fixed by the Department of Fisheries that the bank could not entertain more applications. The above observations are more or less applicable in respect of two others banks with good records, the Sonapur and Chatrapur branches of the Rushikulya Gramya Bank (RGB).
Poor communication with the village, which is almost inaccessible during four months of the rainy season, and the inadequacy of follow-up, contributed to the low recovery rate at one of the rural banks. Delay in processing applications, denying timely availability of loans, drove people of one village towards the Integrated Rural Development Programme (IRDP) scheme which provides a subsidy of 331/3 per cent.
The Agricultural Development Bank of the State Bank of India, Khodasing, had the benefit of a full-time Field Officer (FO) deputed from the Department of Fisheries exclusively for the fisheries sector after a loan recovery period of two years. With good liaison between the FO and the FEO, the recovery rate improved considerably.
From the point of view of the state of Orissa as a whole, the mission observed a few other positive results of the credit programme as far as the objective of establishing direct and lasting links between artisanal fisherfolk and rural bank branches is concerned. Wherever loan repayment was exceptionally good, the banks financed the fishermen directly, without even recourse to NABARD refinance and banking plans. In some places, loanees had made repayment in advance of the due date and had applied for a second loan which the banks gladly disbursed without reference to the fisheries officer, who had sponsored their application for the first loan. Such a welcome spin-off clearly demonstrates the economic viability of extending the bank loan to small-scale fishermen and providing them with an opportunity to borrow money at reasonable interest rates without the burden of moneylenders' dictates or the assistance of village leaders.
Another positive effect is that the BOBP credit scheme has contributed to a considerable reduction of the exhorbitant interest rates for informal loans by introducing a competitive supply of institutional credit as far as quick and easy delivery is concerned.
