Financing Joint Liability Group

In line with Government’s policy of “ FINANCIAL INCLUSION”, Reserve Bank of India advised the banks through their circular dated July 14, 2006 to open a separate window for Joint Liability Groups ( JLG ) of Tenant Farmers to ensure the extension of certain portion of total credit to them. Subsequently, NABARD has conducted a study on the impact of the programme in financing of farmers under the JLG model and salient points came out as under:i) Despite the increasing credit flow to agriculture sector increasing average loan size per loan account indicates to inadequate credit access to the marginalized portion of the farming community.ii) Progress in financing of farmers under JLG scheme has been slow and uneven.iii) Rural Non-Farm Sector (RNFS) provides alternative employment and income generation opportunities in rural areas in a sustainable manner, especially through micro enterprises and JLGs are pursuing non-farm activities in various parts of the country in order to enhance opportunities for livelihood in terms of income and employment.In order to expand the outreach of the programme, the NABARD has revised the operational guidelines for “Financing Joint Liability Groups (JLGs) of Small Farmers (SF)/ Marginal Farmers (MF)/ Tenant Farmers/ Oral Lessees and Share Croppers and Micro Entrepreneurs”.The revised guidelines for financing JLGs is given below.

THE SCHEME FOR JLG FINANCING (FARM SECTOR)1. Objectives:

To augment flow of credit to farmers, especially small, marginal, tenant farmers, oral lessees, share croppers/ individuals taking up farming activities.

To serve as collateral substitute for loans to be provided to the target group. To build mutual trust and confidence between bank and the target group. To minimize the risks in the loan portfolio for the banks through group approach,

cluster approach, peer education and credit discipline. To provide food security to vulnerable section by enhanced agriculture

production, productivity and livelihood promotion through JLG mechanism.

2. General features of JLG:A Joint Liability Group (JLG) is an informal group comprising of 4-10 individuals coming together for the purpose of availing bank loan on individual basis or through group mechanism against mutual guarantee. Generally, the members of a JLG would engage in a similar type of economic activity in the Agriculture and Allied sector. The members would offer a joint undertaking to the bank that enables them to avail loans. JLG members are expected to provide support to each other in carrying out occupational and social activities.

3. Criteria for membership:i) Members should belong to similar socio-economic status, background and environment carrying out farming and Allied activities and who agree to function as a joint liability

group. This way the groups would be homogeneous and organized by likeminded farmers/individuals and develop mutual trust and respect.ii) The members should be residing in the same village/ area/ neighbourhood and should know and trust each other well enough to take up joint liability for group/ individual Loans.iii) Members who have defaulted to any other formal financial institution, in the past, are debarred from the Group Membership.iv) More than one person from the same family should not be included in the same JLG.

4. Group Approach:i) All members of the JLG should be active enough to assume leadership of the group to ensure the activities of the JLG. The selection of an effective/ able/ active leader for the JLG is essential, as this will ultimately benefit all the JLG members. The leader fosters a sense of unity, oversees and maintains discipline, share information and facilitates repayments. For the bank he is the focal point for group activities.ii) The JLG should hold regular meetings which must be attended by all the members regularly to discuss issues of mutual interests.iii) The principles of self-help and group strength need to be emphasized. Group cohesion has to be ensured. Adequate emphasis should be placed on the roles, expectations and functions of the group/ members and the benefit of the group dynamics.iv) The JLG can easily serve as a conduit for technology transfer, facilitating common access to marketing information, for training and technology dissemination in activities like soil testing, training and assessing input requirements.v) The JLG for specific activity, e.g. production of pulses / vegetables / fruits may be federated at village/ block level for development of the product.vi) The JLG in the clusters on their stabilization could come together in the form of cluster federation or producers’ companies with a view to contributing the entire value chain and thereby achieving economics of scale in procurement, processing and marketing of the produce.vii) The JLGs and evolving JLG structures are expected to build up empathy and understanding and create responsive lending mechanism leading to greater interaction and interdependence between the members of JLGs.

5. Who can form JLG:Business Facilitators, NGOs, Farmers Clubs, Farmers Associations, Panchayat Raj Institutions (PRIs), Krishi Vikash Kendras ( KVKs), State Agriculture Universities ( SAUs), Agriculture Technology Management Agency (ATMA), Bank branches, PACS, other cooperatives, Govt. Depts., Individuals, Input Dealers and MFIs/ MFOs, etc.

6. JLG Models:There are two models of financing JLGs, as enumerated hereunder and branch may adopt any of the methods considering the ground situation. However, Group model is advisable where Group Cohesion, homogeneity in socio-economic status of group members and activity chosen, group stabilization, mutual trust and respect among members is present.

Model A – Financing Individuals in the JLG.Each member of the JLG should be provided an individual KCC. The financing branch could assess the credit requirement, based on the crop to be cultivated, available cultivable land/ activity to be undertaken and the credit absorption capacity of the individual. All members would jointly execute a Joint Liability Agreement, making each one jointly and severally liable for repayment of all loans taken by all individuals belonging to the group.The mutual agreement needs to ensure consensus among all members about the amount of individual debt liability that will be created including liability created out of the individual KCC. Any member opting out of the group or joining the group, will necessitate a new Joint Liability agreement, to be kept on record in the branch.

Model B—Financing the JLG as a group:The JLG functions, operationally as one borrowing unit. The group would be eligible for accessing one loan, which could be combined credit requirement of all of its members. The credit assessment of the group could be based on the available cultivable area of each member of the JLG/ activity to be undertaken. All members would jointly execute Joint Liability Agreement and own the debt liability jointly and severally.The mutual agreement needs to ensure consensus among all members about the amount of individual liability that will be created. Any change in composition of the group, will lead to a new Joint Liability Agreement being registered by the bank branch.

OPERATIONAL GUIDELINES

1. Savings:JLG members need to be encouraged to save regularly. Banks may open savings account by the JLG/ individual members of the JLG to ensure regular savings and thrift habit amongst them. However, the quantum of loan to be given to the groups should be related to the credit needs of the enterprise and not to the quantum of savings.While opening the SB account in the name of JLG, the bank should call for the following documents:i) A resolution passed in the group meeting signed by all the members containing, decision to open Bank Account, authorization of 3 members of the group for joint operation of the account.ii) Filled in application form.iii) Recent Passport size photograph of authorized signatoriesiv) Documents for KYC complianceThe group may be allowed to open S.B. account with an initial cash deposit of Rs.50/- only. On opening of the account a passbook shall be issued to JLG which should be in the name of JLG but not in the name of any individual member.

2. Area of operation:Through all rural and semi urban branches

3. Eligibilityi. Owner cultivators (Small Farmers, Marginal Farmers)ii. Tenant Farmers, Oral Lessees, Share Croppers

4. Purpose:Both term as well as short term/working capital credit facilities for meeting the short term production need and term loan need for allied activities like poultry, dairy, pisciculture, floriculture, horticulture etc. will be provided through a single combined sanctioned limit.

5. Credit limit:i. Working capital will be in the form of revolving cash credit and any number of withdrawals and repayments in the account is allowed with a view to provide flexibility to the borrower in deciding the appropriate time for withdrawal of the sanctioned limit and reducing his loan and interest burden. (For ST Crop Loan, Consumption Loan and repayment of non-institutional loans)ii. Term Loan to be sanctioned for purchase of agricultural implements, plant and machinery and land development including construction of different types of storage facilities.iii. While fixing the limit and sub-limits, entire year's production credit requirement is reckoned, including those of ancillary activities such as storing, marketing, electric expenses etc.iv. Credit limit is fixed on the basis of land holding under cultivation, cropping pattern and the scale of finance recommended by District/State level technical committee. In the absence of such recommendation, the branch may fix appropriate scale of finance for the crop after getting permission from the concerned Regional Office.v. The branch should also fix season-wise sub-limits within the overall credit limit.vi. Contingency expenses, including consumption loan should not exceed 10% of the ST loan sub-limit subject to maximum Rs.10,000/- till harvesting the benefit of production linking with family need.vii Repayment of loan availed from non-institutional lenders by the farmer borrowers in addition to consumption/contingency credit limit should not exceed 25% of the ST loan sub-limit subject to maximum Rs.25,000/-.

6. Economics of the Scheme:The economics will vary from scheme to scheme to be undertaken by the member farmers. The branch is to draw up the economics based on production-linked programme of each specific scheme.In course of drawing up economics of the scheme, income from each activity has to be worked out separately. On the basis of each separate economics, a summary is to be drawn up to arrive at the final position of the Integrated Farm Productions Scheme. While drawing up economics of the scheme, branches may make a reference to the schemes circulated by HO/NABARD/SLBC.

7. Security / Margin:It should be in conformity with the guidelines issued by RBI/NABARD/BANK from time to time in respect of agricultural advances. As per extant guideline there is no margin or additional security required up to a loan limit of Rs.100,000/- per individual.Primary Security:Hypothecation of asset - Crop/Farm Machinery/Dairy Animal, etc. as applicable.Additional Security:i) Individual limit up to Rs.100000/- : NILii) Individual limit above Rs.100000/- : Mortgage of land/ Third Party Guarantee Mortgage of land by way of declaration in Form-I or Equitable mortgage / Registered mortgage as applicable as the case may be.

8. Interest:As per directive of RBI/Bank issued from time to time. The rate of interest is subject to change from time to time as per H.O. Instruction. For short term production loan up to Rs.3.00 lac per individual the interest subvention scheme will be applicable as usual.

9. Interest payable on credit balances:Interest as applicable for S.B. Account, is payable in the Revolving Cash Credit account on the credit balance, if any.

10. Documents:a) Financing Individuals in the JLG:i. D.P. Note for the sanctioned limitii. Agreement for Term Loan & Hypothecation (For Allied activities)iii. Letter of continuityiv. Hypothecation of crop / assets to be created out of bank loanv. If the sanctioned limit is more than Rs.100,000/- mortgage of land/or third party guarantee acceptable to the Bank.vi. Joint Liability Agreement.vii. Letter of Undertaking from individual JLG members.viii. Vernacular Undertakingix. Application Form , Introduction Form and sanction letter.

b) Financing the JLG as a group:i. D. P. Note for the sanction limitii. Specific Application Form for JLG financing to be obtained and Inter-se agreement to be executed by the members of the JLG.iii. Articles of Agreement to be signed by the authorised member of the group and Bank official.iv. A copy of the resolution of JLG for granting loans to membersv. A copy of the resolution of JLG authorising selected members for execution of documents.vi. Copy of the bye laws, if any.vii. Hypothecation of the asset created out of loan

viii. Letter of Continuity in case of cash credit / overdraft.ix. Vernacular undertaking / declaration.x. Letter of Guarantee from the members, if applicable, in bank's standard format.xi. Joint Liability Agreement & Undertaking from individual member.xii Sanction Letter.

11. Repayment:The short term credit / crop loan as well as working capital for agriculture and allied activities would continue to be provided as revolving cash credit repayable within due dates in the line of KCC. However, the term loan component will be repayable in monthly/ quarterly/ half yearly instalments within a maximum period of 5 to 7 years depending upon the type of activity / investment as per existing guidelines.

12. Accounting procedurei. For short-term farm loan, the limit will be in the form of a revolving cash credit.ii. For medium-term loan as per scheme, the account is to be created to the debit of appropriate CBS head meant for MTFL.iii. Consumption loan and loan for repaying non-institutional lenders will form part of revolving credit (ST loan).

13.Crop Insurance under NAISAll individual Crop loans under JLG-KCC are to be covered under National Agricultural Insurance Scheme (NAIS)/Modified National Insurance Scheme(MNAIS)/Weather Based Crop Insurance Scheme(WBCIS) as the case may be in respect of the notified crops. It is implemented with the approval/consent of State Government concerned, which is monitored and followed up by SLBC of that State.The following crops are covered under NAIS/MNAIS/WBCIS: -a) Food crops (cereals, millets, pulses)b) Oil seedsc) Sugar cane, cotton and potato (annual commercial / annual horticulture crops)d) Any other crop notified by the concerned State Government.

14. Personal Accident Insurance Scheme (PAIS)The coverage under PAIS is also compulsory for all individual JLG-KCC holders. The premium payable under the scheme is to be shared by the issuing Branch and the KCC holder in the ratio of 2:1.

15. Other conditionsi) No processing charge or pre-repayment (if not taken over by other bank) charge will be levied.ii) For such loan, Service Area Concept will not be applicable.iii) The concept of 'No Objection Certificate' is dispensed with for loans up to Rs.50000/- per individual, but indebtedness of the farmer is to be examined by exchange of list of

borrowers amongst the bankers in the service area/block/tehsil or a self declaration by the memberss to be insisted upon.iv) If some members of JLG and/or other family members of the members of JLG are defaulters to financing Bank, the branch shall not decline the loan proposal of JLG. The branch while sanctioning loan should scrutinise the individual loan applications of the group to ensure that the defaulters are not applicants. The defaulter members can avail loan after liquidating their existing loans.v) Village/Panchayat leaders should not be the office bearer of the JLG.

16. Credit to JLGs of SF/MF/TF/Oral Lessees/ Share Cropper to form normal business activity will be treated as Direct Agriculture advance as the case may be under Priority Sector.

17. Monitoring and Review:i) The JLGs through peer pressure will ensure loan utilization and timely repayment. All members will be held liable in case of default.ii) Branch officials are to maintain harmonious relations and continuous close contact and relationship with the JLG leader and other members so as to convert them into good reliable customersiii) Half yearly progress reports are to be sent by the branches to the Regional Office as per format and RO will submit consolidated reports as on 30 th September and 31st March each year to HO within 20 days of the half year to which the report relates.

18. Incentive for promotion of JLGs:i) To facilitate promotion of JLGs, Banks/ other Institutions as Joint Liability Group Promoting Institution (JLPIs) are eligible for grant assistance from NABARD. Each JLPI is expected to formulate a plan for promotion of JLGs and sanction of credit to the JLGs for a minimum size of 20 JLGs. NABARD will extend grant assistance to bank for facilitating formation, nurturing and financing of JLGs over a period of 3years @ Rs.2000/- per JLG. Other Institutions promoting JLGs will be eligible for grant assistance of Rs.2000/- per JLG over a period of three years through banks.ii) The first installment of Rs.1000/- would be released to bank/ other institutions after sanction of loan by the bank. The 2nd installment would be released after commencement of the repayment. The 3rd installment may be released in 3rd year subject to certification from the bank with regard to satisfactory repayment.iii) With regard to payment of grant in respect of JLG Promoting Institutions, the grant would be routed through bank, involved in JLG financing and the rate and pattern of release of grant would be the same as applicable to the banks. However, the funds would be released by NABARD, based on the certification by the bank as indicated above.iv) The Business Facilitators engaged by bank for promotion and linkage of JLGs may take steps to evolve/ introduce simple books of accounts and registers as in case of SHGs.

19. Capacity Building:NABARD’s assistance will be available for organizing Capacity Building Programmes like conduction of training programmes for stakeholders, awareness & sensitization of JLG concept both for Bank’s own staff as well as that of target groups.

20. NABARD Refinance:NABARD will provide 100% refinance assistance under investment credit to bank in respect of lending to JLGs under Investment Credit as per following:i) The revised scheme of financing JLG envisages a flexible and composite credit product comprising of block capital and/ or working capital. NABARD will provide 100% refinance assistance to bank in respect of lending to JLGs under investment credit and theprocedure for claiming refinance from NABARD would be similar to that under SHG-Bank Linkage Programme.ii) The format for drawal application under JLG will be similar to that under SHG financing. Terms and conditions of refinance like Repayment, etc as applicable to SHG lending will be applicable to JLG lending also.

21. Special Thrust Area:Branches should explore the formation of crop/commodity specific and activity specific JLGs which will facilitate pooling of demand for seeds, raw materials and other inputs as well as provide an opportunity for sorting, grading and aggregating their produce and negotiate for better prices.

THE SCHEME FOR FINANCING JLGs OF MICRO ENTREPRENEURES/ ARTISANS/ OTHERS/ IN RURAL NON-FARM SECTORS

1. Objectives: To augment flow of credit to Micro Entrepreneurs/ artisans/ individuals in Non-

Farm sector activities. To serve as collateral substitute for loans to be provided to the target group. To build mutual trust and confidence between bank and the target group. To minimize the risks in the loan portfolio for the banks through group approach,

cluster approach, peer education and credit discipline. To provide sustainable livelihood opportunities to vulnerable section for enhanced

productivity and livelihood promotion through JLG mechanism.

2. General features of JLG:A Joint Liability Group (JLG) is an informal group comprising of 4-10 individuals coming together for the purpose of availing bank loan on individual basis or through group mechanism against mutual guarantee. Generally, the members of a JLG would engage in a similar type of economic activity in the Non Farm sector. The members would offer a joint undertaking to the bank that enables them to avail loans. JLG members are expected to provide support to each other in carrying out occupational and social activities.

3. Criteria for membership:i) Members should belong to similar socio-economic status, background and environment carrying out non-farm activities and who agree to function as a joint liability group. This way the groups would be homogeneous and organized by individuals and develop mutual trust and respect.ii) The members should be residing in the same village/ area/ neighbourhood and should know and trust each other well enough to take up joint liability for group/ individual Loans.iii) Members who have defaulted to any other formal financial institution, in the past, are debarred from the Group Membership.iv) More than one person from the same family should not be included in the same JLG.

4. Group Approach:i) All members of the JLG should be active enough to assume leadership of the group to ensure the activities of the JLG. The selection of an effective/ able/ active leader for the JLG is essential as this will ultimately benefit all the JLG members. The leader fosters a sense of unity, oversees and maintains discipline, share information and facilitates repayments. For the bank he is the focal point for group activities.ii) The JLG should hold regular meetings which must be attended by all the members regularly to discuss issues of mutual interests.iii) The principles of self-help and group strength need to be emphasized. Group cohesion to be ensured. Adequate emphasis should be placed on the roles, expectations and functions of the group/ members and the benefit of the group dynamics.iv) The JLG can easily serve as a conduit for technology transfer, facilitating common access to marketing information, for training and technology dissemination in activities relating to non-farm sector training and assessing input/ raw material requirements.v) The JLG for specific non-farm activity, e.g. productions of handicrafts/ other non-farm products may be federated at village/ block level for development of the product.vi) The JLG in the clusters on their stabilization could come together in the form of cluster federation or producers’ companies with a view to contributing the entire value chain and thereby achieving economics of scale in procurement, processing and marketing of the produce.vii) The JLGs and evolving JLG structures are expected to build up empathy and understanding and create responsive lending mechanism leading to greater interaction and interdependence between the members of JLGs.

5. Who can form JLG:Business Facilitators, NGOs, Farmers Clubs, Farmers Associations, Panchayat Raj Institutions (PRIs), Krishi Vikash Kendras ( KVKs), State Agriculture Universities ( SAUs), Agriculture Technology Management Agency (ATMA), Bank branches, PACS, other cooperatives, Govt. Depts. Producers’ Associations, artisans Guilds, Department of SMEs, Small Scale Industries/ Agro Industries, Individuals, Input Dealers and Document writers ( in cooperative banks), MFIs/ MFOs, etc.

6. Savings:JLG members need to be encouraged to save regularly. Banks may open savings account by the JLG/ individual members of the JLG to ensure regular savings and thrift habit amongst them. However, the quantum of loan to be given to the groups should be related to the credit needs of the enterprise and not to the quantum of saving.

7. JLG Models:Model A – Financing Individuals in the JLG.Each member of the JLG should be provided an individual Swarojgar Credit Card (SCC)/ Artisan Credit Card (ACC)/ United Shilpi Card(USC)/ Laghu Udyami Credit Card(LUCC) etc. The financing branch could assess the credit requirement, based on the product/ enterprise/ activity to be undertaken and the credit absorption capacity of the individual. All members would jointly execute Joint Liability Agreement making each one jointly and severally liable for repayment of all loans taken by all individuals belonging to the group.The mutual agreement needs to ensure consensus among all members about the amount of individual debt liability that will be created including liability created out of the individual cards, as mentioned above. Any member opting out of the group or joining the group will necessitate a new Joint Liability Agreement, to be kept on record in the branch.

Model B—Financing the JLG as a group:Till receipt of further instruction from Head Office, branches should desist from financing JLGs in Group Model for non-farm sector.

8. Sector Classification: Credit to JLGs of micro entrepreneurs to form normal business activity will be treated as Micro and Small Enterprise as the case may be under Priority Sector.

9. Credit Appraisal:i) Branches will conduct a thorough credit appraisal to avoid under or over-financing.ii) Assessment of loan amount should be in a flexible manner addressing the credit requirements of its members including production/ working capital, marketing and investment credit, besides other productive purposes in the non-farm sectors.iii) Bank’s existing guidelines on SCC/ ACC / USC/ LUCC/ SHG & SME financing are to be followed.

10. Margin:Up to loan amount of Rs.25000/-: NILLoan above Rs.25000/- to Rs.5.00 lac : 10% - 15% of Project CostLoan above Rs.5.00 lacs : 15% - 25% of Project Cost

11. Security:Primary: Hypothecation of assets created out of bank loan

Collateral:i) For loan up to Rs.10.00 lac : NILii) For loan above Rs.10.00 lac: Collateral security as per lending policy of bank.Credit Guarantee coverage is available to MSE advance up to Rs.1.00 crore, sanctioned without collateral security and Third Party Guarantee. All MSE loan sanctioned without collateral security and / or third part guarantee should be mandatorily covered under CGTMSE.

12. Interest:As per bank’s prevailing rate of interest.

13. Documentation:i. D.P. Note for the sanctioned limitii. Letter of continuityiii. Hypothecation of Goods/ Hypothecation of Debts & Movable Assets / Hypothecation of Plant & Machinery/ Deed of Hypothecation (Transport Equipments) as applicable depending on assets.iv. Joint Liability Agreementv. Letter of Undertaking from individual JLG members vi. Vernacular Undertakingvii. Application Form , Introduction Form.

14. Monitoring and Review:i) The JLGs through peer pressure will ensure loan utilization and timely repayment. All members will be held liable in case of default.ii) Branch officials are to maintain harmonious relations and continuous close contact and relationship with the JLG leader and other members so as to convert them into good reliable customersiii) Half yearly progress reports are to be sent by the branches to the Regional Office as per format and RO will submit consolidated reports as on 30 th September and 31st March each year to HO within 20 days of the half year to which the report relates.

15. Incentive of promotion of JLGs:Same as Farm Sector.

16. Capacity Building:Same as Farm Sector.

17. NABARD Refinance:Same as Farm Sector.

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Above-mentioned Annexures are available with H.O. Circular No. RCPPOD/ PS/3/ OM-0118 /10 – 11 dated 05-June-2010

1. ANNEXURE-I -- Introduction Form;2. ANNEXURE-II -- APPLICATION CUM APPRAISAL FORM (For financing Individuals of a JLG)3. ANNEXURE-III -- JOINT LIABILITY AGREEMENT;4. ANNEXURE-IV-- LETTER OF UNDERTAKING;5. ANNEXURE-V -- Pre-sanction Processing Sheet for U.K.C;6. ANNEXURE-VI -- Loan application to be submitted by JLG to Bank Branch while applying for loan assistance in Group Mode;7. ANNEXURE-VII -- SANCTION LETTER FOR FINANCING TO JOINT LIABILITY GROUP;8. ANNEXURE-VIII -- INTER-SE AGREEMENT TO BE EXECUTED BY THE MEMBERS OF THE JOINT LIABILITY GROUP (TO BE STAMPED AS AN AGREEMENT AND A GENERAL POWER OF ATTORNEY);9. ANNEXURE-IX -- FORMAT OF ARTICLES OF AGREEMENT FOR USE BY BANKS WHILE FINANCING JOINT LIABILITY GROUPS.

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