NABARD Loan for Producer Companies in India – A Comprehensive Guide

In India, agricultural growth has been a priority for decades. Institutions like NABARD (National Bank for Agriculture and Rural Development) have played a pivotal role in enabling this growth. For Producer Companies, NABARD’s financial assistance and loan schemes are critical for their survival and growth. This guide will walk you through NABARD loans for Producer Companies, their benefits, eligibility, and the application process.

What is a Producer Company?

A Producer Company is a legally accepted entity formed by farmers or producers. The main aim of this type of organization is to increase collective productivity and reach into the market space. The concept originated under the umbrella of the Companies Act 1956. It is conceptually similar to that of a cooperative society. Producer companies can participate in production, harvesting, procuring, grading, pooling, handling, marketing, selling, and exporting primary produce and its products. Furthermore, producer companies can provide services related to education, training, and research to their members.

In India, small farmers often lack access to adequate resources and markets, which makes it difficult to earn a stable livelihood. Producer companies solve this issue by providing a unified platform that allows them to market their produce collectively and take advantage of economies of scale.

Why Consider a NABARD Loan for Producer Companies?

India has over 12.5 crore farmer households of which over 85% are small and marginal farmers with landholdings of less than 2 hectares. The average size of landholding is 1.33 hectares/ farmer households. Since its inception in 1982, NABARD has remained committed to rural development. It helps Producer Companies gain access to vital working capital including infrastructure, technology, and training, through its varied financial service offerings.

Benefits of a NABARD loan to a Producer Company include:

• Access to working capital: Loans to Producer Companies can help them finance their business operations, purchase equipment, and invest in (or upgrade) both farm and off-farm processing operations.
• Infrastructure development: Funds can also be used to set up new, or upgrade existing, working capital processes. It includes warehouses, cold stores, and processing facilities.
• Capacity development: Training, advisory services, and technology-based assistance can help businesses finetune processes and increase their production capabilities.
• Interest rate benefits: Interest rate subsidies and other NABARD schemes all contribute to making NABARD loans and borrowing affordable.

Types of NABARD Loans for Producer Companies

• Working capital loans: These loans help cover day-to-day operational costs incurred when procuring raw material, labour, transporting, and processing products (including packaging).
• Term Loans: Capital expenditures such as processing machinery, cold storage warehouses, and technology upgrades, are supported by NABARD, through a maximum, repayment term.
• Infrastructure Development Assistance: NABARD provides loan funding assistance to Producer Companies, to enable Producer Companies to build infrastructure to improve productivity and profitability. Targeted infrastructure includes cold storage units, warehouses, and other transportation infrastructure.
• Refinance assistance: NABARD may also refinance the bank or financial institution lending to Producer Companies. Therefore, with NABARD funding, banks and financial institutions may lend more favourably. (e.g., better repayment terms or lower interest rates).

Read: NABARD Dairy Entrepreneurship Subsidy Scheme

Eligibility Criteria for NABARD Loans

To qualify for a NABARD loan, a Producer Company must meet the following criteria:

• Legally registered: Producer Companies must be registered as a Producer Company under the Companies Act, 2013.
• Member composition: The Producer Company must be comprised of at least 80% primary producers (e.g., farmers or agricultural workers).
• Business plan: The Producer Company must have an effective business project plan.
• Turnover: There is no minimum turnover requirement. However, it is seen producer Companies with a turnover between INR 50 lakhs to INR 1 crore may receive loan approval faster.

Latest Data on NABARD’s Loan Impact on Producer Companies

According to the latest reports, as of the 2023-24 review, NABARD has supported the establishment of more than 10,000 Producer Companies. As part of the credit support, NABARD focuses on expanding the business, increasing access to the market, and raising members’ income. As per the annual report of NABARD, the income of the members of the NABARD-attached Producer Companies has increased by 30%.

In the annual finance budget for 2024, the government of India granted over INR 1.25 lakh crore for NABARD’s rural infrastructure programs. It includes programs for developing Producer Companies. This shows the growing recognition of the importance of collective farming and rural development to food security.

How to Apply for a NABARD Loan

The procedure for a NABARD loan for a Producer Company is simple, but a great deal of documentation and planning is required.

• Preparing a Business Plan: First, prepare a business project plan.
• Submit Applications: Next, you submit the business plan and loan application to your nearest NABARD office or partner financial institution.
• Process the Application: After that, NABARD will process the business plan and assess applicant eligibility.
• Loan Issue: Finally, if the company meets the original criteria, the loan will be issued.

Key NABARD Schemes for Producer Companies

• NABARD’s Producer Organisation Development Fund (PODF): This fund aims to develop capacities and infrastructure for producer organisations. When the producer company gets financial assistance from the scheme, technical and advisory support can also be provided.
• NABARD’s Equity Support Fund for Producer Companies (ESFP): In this scheme, NABARD provides equity support to eligible Producer Companies to mobilise additional loans and grants for business expansion.
• National Rural Livelihoods Mission (NRLM): Producer Companies formed under NRLM guidelines receive preferential consideration under NABARD funding schemes, particularly for micro and small businesses.

Case Study: How NABARD Loans Changed a Producer Company

For example, the Green Harvest Producer Company was established in Maharashtra in 2017. Initially, the company was struggling with finances and facing challenges in accessing the markets. It accessed NABARD loans and sustained a cold storage facility and modern agricultural equipment for farming.

Green Harvest Producer Company has since grown in size, growing its turnover from Rs.10 lakhs to Rs. 5 Crores and increasing the member count from 100 to 500 farmers. This example is not unique, as thousands of Producer Companies across India have received NABARD’s financial support and have grown their business or allowed their members to improve their livelihoods.

Related: Best Agricultural Loan Providers In India

Challenges in Securing NABARD Loans

Although NABARD loans are available, there are constraints for some Producer Companies to access them, which include:

• Lack of Information: Many farmers are not informed of the NABARD schemes or how to benefit from them
• Documentation: The need for a lengthy documentation process for loan applications can be a challenge for a small Producer Company
• Market Price. As Producer Companies are vulnerable to market price fluctuation it can be a challenge to maintain profitability

Conclusion: As of today, NABARD loans will continue to be a lifeline for Producer Companies throughout India. NABARD can support Producer Companies with access to capital, infrastructure, and technical support to grow their companies, and which in turn supports small farmers and rural communities. If you are seeking to start a Producer Company or expand your existing operation, NABARD offers a variety of financial products and advisory services that can help you take your operation to the next level. Once you have a solid business plan and documentation, and an understanding of the existing business with documentation, securing the funding you need for success is not as difficult.

If you want to apply, visit the NABARD official website or your nearest NABARD office to inquire about which loan products and services are available for Producer Companies.