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The Reserve Bank of India (RBI) on Friday (September 2) announced a pilot project for end-to-end digitalisation of lending via Kisan Credit Cards (KCC).

The KCC scheme, launched in 1998, allows farmers to purchase agriculture products and services on credit. The central government provides interest subvention of 2% and prompt repayment incentive of 3% to the farmers, helping them avail credit at a rate of 4%.

“A pilot project for end-to-end digitalisation of KCC lending, developed by the Reserve Bank Innovation Hub (RBIH) in association with RBI is being taken up,” the central bank said in a statement. 

The pilot project will commence later this month in select districts of Madhya Pradesh and Tamil Nadu in partnerships with Union Bank of India and with Federal Bank, respectively. Once the pilot is completed, the RBI will actively use the ‘learnings’ to scale up gradual deployment of KCC-based lending across the country.

“The pilot project would entail automation of various processes within banks and integration of their systems with the service providers. The proposed digitalisation of the KCC lending process will make it more efficient, reduce costs for borrowers and reduce TAT (turnaround time) significantly,” the RBI added.

According to the central bank, the pilot project will facilitate credit flow to the unserved and the underserved rural population. The project aims to make the process of availing credit ‘faster and more efficient’.

The project is one of the key facets of RBI’s fintech initiatives aimed at digitalisation of rural finance in the country.

Hurdles In Availing Credit

India is primarily an agrarian country, with an active demand for rural finance to cater to the  needs of farmers, small businesses and other agriculture-related ancillary services. Noting the cumbersome financing process, the RBI said that the current process involves in-person visits to the branch and submission of physical documents. 

The central bank pegged the TAT from loan application to disbursement in the range of two to four weeks. Digitalisation of KCC can enable farmers to access credit at the touch of a button. 

Earlier, the RBI had noted that a mere 40% of India’s small and marginal farmers were covered by formal credit. Outside the ambit of the formal credit system, the farmers are subjected to unregulated loan sharks which charge high rates of interest. 

Earlier this month, the Union Cabinet approved the restoration of interest subvention for short term agriculture loans to 1.5% for all financial institutions.