IIM-Pledge finance

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Pledge Finance to Agri Commodities
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PLEDGE

• What it is ?
• Bailment of goods as a security for payment of a
  debt or performance of a promise.
• Bailment or transfer of possession
• Only possession but not the ownership

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RESPONSIBILITIES OF PLEDGEE

• Must exercise reasonable care.
• When pledged goods are stolen or robbed -- bank
  can not be held responsible when exercised
  reasonable care.
• For loss or deterioration -- responsible.

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RIGHTS OF PLEDGEE

• Right to retain
• Right to sell by giving reasonable notice.
• Sale need not be public.it can be private also
• Can file a suit.

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ESSENTIALS OF PLEDGE FINANCING

• Goods / Commodities be stored under banks lock
  key or in warehouses against warehouse receipts
  or with clearing agents
• Merchandise register drawing power register to
  be maintained
• Nature of goods, value, perishability, storage
  facility to be verified
• Periodic inspection
• Proper insurance
• Display of banks signboard

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But the needs of the following
are not met
Private RG owner Aggregator
Small farmer storing in Private Warehouse
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Indian Agricultural Scenario- A perspective
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The Cobweb syndrome
Glut in production
Bandwagon effect
Crash in prices
Current price determines future crop choice
The starting point
Poor income realization
Prices rise
Shortage in earlier crop
Change of crop
Futures prices would help farmers migrate to
demand-led-cropping pattern
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WHY THEY NEED PLEDGE FINANCE?

• To Prevent distress sale by producers.
• To Promote cleaning, drying and grading at farm
  gate.
• To Promote proper storage facilities.
• To Facilitate better price realization by
  farmers.
• To Avoid glut conditions in market.

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HOW THIS BECAME A BURNING ISSUE?

• Due to Gramin Bhandaran Yojana, Cold storage
  scheme, AMI and the Creation of Huge storage
  capacities in the private sector ( gt150 lakh MT)
• GOIs mission
• To prevent distress sale of food grains and other
  agricultural produce immediately after harvest.
• To reduce quantitative and qualitative losses due
  to storing of food grains in substandard storage.
  
• To reduce pressure on transport system in the
  post harvest periods of peak supply.
• To help the farmers in getting pledge loans
  against their stored produce to meet immediate
  financial requirement.

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Dilemma of the Conventional Banker

Let's go through a Case study
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CONTMEPORARY TOOLS FOR
APPRAISAL

• Access to Time series data on various
  commodities
• Sourcing information from NCDEX,MCX
• Keeping in touch with NCMSL and accessing their
  services
• Studying market trends mark to market on
  regular basis
• Electronic back bone

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Collateral Management

• National Collateral Management Services Limited
  promoted by NCDEX
• Accreditation of Warehouses - parameter based
• Robust grading by reputed agencies
• Dematerialization of Warehouse receipts
• Bank lending against warehouse receipts
• Farmers deposit goods in accredited warehouses
• Goods assayed and graded
• Finance provided to farmers by banks against
  warehouse receipt

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RESULT
Smart work by NEXGEN
Customer happy with Pledge Finance