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A third-party assessment by the Institute for Social and Economic Change, Bengaluru, found that every rupee invested under the KCC-Modified Interest Subvention Scheme adds Rs 2.30 to net value addition in agriculture and allied sectors.
MISS is a Central Sector Scheme launched in 2006-07 to provide short-term credit to farmers at an affordable rate through the Kisan Credit Card.
Farmers get short-term loans up to Rs 3 lakh at a subsidised interest rate of 7%, with 1.5% interest subvention paid to lending institutions.
Prompt repayment earns an incentive of up to 3%, bringing the effective rate down to 4%.
For loans taken exclusively for animal husbandry or fisheries, the benefit applies up to Rs 2 lakh.
An interest subvention is a subsidy paid to the lender rather than to the borrower, so that the borrower is charged a lower rate than the market would set. The government's stated reason for using it in agriculture is that the alternative — informal credit from traders and moneylenders at very high rates — traps farmers in debt at exactly the moment when they need to buy seed and fertiliser. Making formal short-term credit cheap and available at sowing time is intended to break that dependence. The design also carries an incentive: the full benefit is only obtained by repaying on time, since the 3% Prompt Repayment Incentive is what takes the rate from 7% to 4%. The ISEC finding of Rs 2.30 of value addition per rupee spent is the standard way such schemes are evaluated — as a multiplier, comparing the fiscal cost with the additional output generated.
Simple Analogy: The government does not hand the farmer money; it pays part of the bank's price for lending, so the loan reaches the farmer cheaper — and holds back the biggest discount until the loan is actually repaid.
Provide farmers with timely and adequate short-term credit for cultivation and allied activities
Key: A revolving credit facility; extended in 2018-19 to cover animal husbandry and fisheries
Reduce the cost of short-term credit for farmers
Key: 1.5% subvention to lenders plus up to 3% Prompt Repayment Incentive to farmers
Apex development bank for agriculture and rural development, established in 1982
Key: Refinances rural lending institutions and implements the scheme alongside the RBI
Financial Awareness > Agricultural credit, KCC, priority sector lending
GS Paper III > Agriculture, issues of credit and farm subsidies
General Awareness > Government schemes
General Awareness > Schemes and agriculture
A subsidy paid to lending institutions so that borrowers are charged a lower interest rate.
An additional benefit of up to 3% for farmers who repay on schedule, reducing the effective KCC rate to 4%.
A scheme fully funded and implemented by the Central Government, as distinct from a centrally sponsored scheme shared with states.
A revolving short-term credit facility for farmers, extended in 2018-19 to animal husbandry and fisheries.
National Bank for Agriculture and Rural Development, established in 1982, which implements the scheme with the RBI.