Small and marginal farmers form the backbone of India's agricultural economy, yet they often face challenges like poor infrastructure, lack of capital, and limited access to formal credit. While Farmer Producer Organizations (FPOs) offer a collective solution, getting loans without collateral has remained a roadblock.
Enter the Credit Guarantee Scheme for FPOs — a government initiative that provides collateral-free finance through a credit guarantee mechanism.
Just like hydration is essential for healthy skin, easy credit is vital for farmer collectives to thrive. Let’s dive into what this scheme means, how it works, and how it can unlock rural prosperity.
What is the Credit Guarantee Scheme for FPOs?
Launched with the support of NABARD and SFAC (Small Farmers’ Agribusiness Consortium), the scheme provides a credit guarantee to financial institutions for loans offered to eligible FPOs. This reduces lending risk and enables farmers’ collectives to access loans without pledging collateral.
That means: FPOs get the funds they need, banks get security, and farmers get to grow.
Objectives of the Scheme
Widen Access to Finance: Provide timely institutional credit to smallholder farmer groups
Improve Productivity: Support investments in agri-inputs, storage, and processing
Enhance Financial Inclusion: Especially for marginal and landless farmers
Strengthen Rural Economy: Encourage scalable farmer-led agribusinesses
Key Features of the Scheme
Credit Guarantee Coverage
Coverage up to 85% of the loan amount
Maximum coverage capped at ₹2 crores per FPO
Applicable for loans with a maximum tenure of 5 years
Who Can Apply? (Eligibility Criteria)
Must be registered as an FPO under the Companies Act or Cooperative Societies Act
Should be actively involved in agriculture production, processing, or marketing
Must have minimum 100 members in plain areas or 50 members in hilly regions
Financial Institutions Involved
Loans can be provided by Commercial Banks, Regional Rural Banks (RRBs), and Cooperative Banks
NABARD and SFAC are the implementing agencies for the scheme
What Are the Financial Assistance to FPOs?
The Credit Guarantee Scheme helps FPOs in many impactful ways:
No Collateral Required: Loans without mortgaging land or other assets
Lower Interest Rates: As lenders are at reduced risk
Growth Capital: Invest in cold storage, packaging, logistics, etc.
Market Advantage: Direct market access and better pricing
Challenges and Way Forward
Key Challenges
Low Awareness: Many FPOs are unaware of the scheme’s existence
Limited Financial Literacy: Difficulty in managing paperwork and loan applications
Reluctant Lending: Some banks still hesitate despite government guarantees
Way Forward
Awareness Campaigns: Conduct training and outreach for FPOs in rural belts
Simplify Loan Processes: Use digital tools and streamlined forms
Collaborate with Ecosystem Players: Encourage partnerships with agri-tech firms, NGOs, and private mentors
