Sources of Funds for Rural Entrepreneurship
Introduction
Rural entrepreneurship plays a vital role in economic development, employment generation, and poverty reduction in rural areas. However, one of the biggest challenges for rural entrepreneurs is access to funding. Unlike urban businesses, rural enterprises often struggle with limited financial resources, lack of credit history, and difficulty in securing loans.
To overcome these challenges, various formal and informal sources of funding are available. These sources include government schemes, banks, cooperative institutions, self-help groups (SHGs), microfinance institutions (MFIs), and venture capital. Understanding these funding options is crucial for rural entrepreneurs to start, sustain, and expand their businesses.
This article examines the major sources of funds available for rural entrepreneurship.
1. Government Schemes and Subsidies
The Indian government provides various financial support schemes to promote rural entrepreneurship. These schemes offer low-interest loans, subsidies, and grants to encourage self-employment and business development in rural areas.
Key Government Schemes:
a) Prime Minister’s Employment Generation Programme (PMEGP)
- Implemented by Khadi and Village Industries Commission (KVIC).
- Provides subsidized loans for new micro-enterprises in rural areas.
- Entrepreneurs can get loans up to ₹50 lakh for manufacturing units and ₹20 lakh for service units.
- Government subsidy: 15% to 35%, depending on category and location.
b) MUDRA Yojana (Micro Units Development & Refinance Agency)
- Provides collateral-free loans to small businesses.
- Three loan categories:
- Shishu (up to ₹50,000)
- Kishor (₹50,000 to ₹5 lakh)
- Tarun (₹5 lakh to ₹10 lakh)
- Available for small traders, artisans, dairy farmers, and rural manufacturers.
c) Stand-Up India Scheme
- Supports SC/ST and women entrepreneurs.
- Loans between ₹10 lakh to ₹1 crore to start a new business.
- Applicable for manufacturing, trading, and service businesses.
d) NABARD’s Rural Entrepreneurship Development Programme (REDP)
- NABARD provides training, skill development, and financial assistance to rural entrepreneurs.
- Focuses on sectors like agriculture, handicrafts, and rural manufacturing.
e) SFURTI (Scheme of Fund for Regeneration of Traditional Industries)
- Supports rural artisans and handicraft clusters.
- Provides financial assistance for infrastructure, marketing, and skill development.
f) Dairy Entrepreneurship Development Scheme (DEDS)
- Provides loans and subsidies for dairy farming, milk processing, and cold storage facilities.
- Entrepreneurs can get subsidies up to 33.33% for eligible projects.
Advantages of Government Schemes:
✔ Lower interest rates compared to private lenders.
✔ Subsidies reduce repayment burden.
✔ Support for marginalized groups (SC/ST, women, small farmers).
2. Bank Loans and Credit Facilities
Commercial banks, regional rural banks (RRBs), and cooperative banks offer various loan products for rural entrepreneurs.
Types of Bank Loans Available:
a) Agricultural and Rural Enterprise Loans
- Given by banks like State Bank of India (SBI), Punjab National Bank (PNB), and Bank of Baroda.
- Used for purchasing equipment, seeds, fertilizers, or setting up small-scale industries.
b) Kisan Credit Card (KCC)
- Provides short-term credit for farmers and rural entrepreneurs.
- Loan amount depends on landholding and production capacity.
- Interest rates as low as 4% per annum (with government subsidy).
c) MSME Loans
- Offered by public and private sector banks.
- Funds can be used for machinery purchase, working capital, or expansion.
d) Joint Liability Group (JLG) Loans
- A group of 5-10 rural entrepreneurs can collectively apply for a loan.
- Suitable for women entrepreneurs, SHGs, and small farmers.
Advantages of Bank Loans:
✔ Flexible repayment options available.
✔ Lower interest rates compared to informal money lenders.
✔ Loan amount can be high, based on business potential.
3. Microfinance Institutions (MFIs)
Microfinance institutions provide small loans to rural entrepreneurs who lack collateral or credit history. These loans are mainly given to:
- Small farmers
- Women entrepreneurs
- Handicraft businesses
- Dairy and poultry farmers
Popular MFIs in India:
✔ SKS Microfinance
✔ Bandhan Bank
✔ Ujjivan Small Finance Bank
✔ Spandana Sphoorty Financial
Advantages of Microfinance Loans:
✔ No collateral required.
✔ Quick processing of loans.
✔ Encourages women-led businesses.
4. Self-Help Groups (SHGs) and Cooperative Societies
Self-Help Groups (SHGs) play a crucial role in financing rural entrepreneurs. These are community-based savings groups where members contribute small amounts regularly and use the pooled funds for loans.
How SHGs Help in Rural Funding?
- Provide microloans for starting small businesses.
- Members can take loans at low-interest rates compared to money lenders.
- Women-led SHGs are highly successful in promoting rural entrepreneurship.
Example:
SEWA (Self Employed Women’s Association) supports women entrepreneurs in weaving, handicrafts, and rural tourism.
Advantages of SHGs and Cooperatives:
✔ Easy access to funds without formalities.
✔ Low or no interest rates.
✔ Encourages community development and financial independence.
5. Venture Capital and Angel Investors
Venture capital firms and angel investors are emerging sources of funding for innovative rural businesses, particularly in sectors like agribusiness, renewable energy, and rural e-commerce.
Examples of Rural Start-ups Funded by Venture Capital:
✔ DeHaat – Agritech start-up providing farm advisory and market linkages.
✔ AgroStar – Online platform for farm products and advisory.
✔ Stellapps – Tech-based dairy solutions provider.
Advantages of Venture Capital:
✔ Provides large funding amounts for expansion.
✔ Investors offer mentorship and business guidance.
✔ Encourages innovation in rural sectors.
6. Crowdfunding and Digital Finance Platforms
Crowdfunding is an alternative method where entrepreneurs raise small amounts from multiple individuals via online platforms.
Popular Crowdfunding Platforms in India:
✔ Ketto
✔ Milaap
✔ Rang De
Advantages of Crowdfunding:
✔ No need for bank loans or collateral.
✔ Funds can be raised quickly.
✔ Direct connection with customers and supporters.
Conclusion
Rural entrepreneurs have access to multiple funding sources, including government schemes, bank loans, microfinance, SHGs, venture capital, and crowdfunding. Each source has its own advantages and eligibility criteria. Choosing the right funding option depends on the business type, financial requirement, and repayment capacity.
By utilizing these funding sources effectively, rural entrepreneurs can overcome financial barriers, scale their businesses, and contribute to rural economic growth and self-reliance.