1. Farmer Suicides in
India:
Breaking the Debt Cycle
Akshay Sinha, Jayati Sethi, Cameron Vea, Khasan Khamudkhanov, Anthea Piong
April 2014

2. 1
Table of Contents
List of acronyms..................................................................................................................................................................4
1. Executive Summary......................................................................................................................................................5
2. Background....................................................................................................................................................................6
3. Causes .............................................................................................................................................................................9
3.1 Environmental..........................................................................................................................................................9
3.2 Social........................................................................................................................................................................10
3.3 Psychological ..........................................................................................................................................................11
3.4 Financial ..................................................................................................................................................................11
4. Current and Past Attempts at Addressing the Problem .......................................................................................13
4.1 Government of India Programs..........................................................................................................................14
4.1.1 Examples of Government Relief Measures...............................................................................................14
4.1.2 Dharwad Case Study......................................................................................................................................16
4.2 Measures Undertaken by NGOs.........................................................................................................................18
5. Potential Options........................................................................................................................................................19
5.1 Maintain status quo................................................................................................................................................19
5.2 Counseling & Mental Health Support................................................................................................................19
5.3 New Crop Insurance .............................................................................................................................................20
5.4 Crop Finance/Agriculture Venture Capitalism Model....................................................................................21
6. Focus of our Model: Crop Finance/Agriculture Venture Capitalism................................................................24
6.1 Basic principles of our model: Islamic Microfinance.......................................................................................25
6.1.1 Applications of Islamic Microfinance.........................................................................................................25
6.1.2 Successful Experiences with Islamic Microfinance ..................................................................................26
6.2 Process of the Model.............................................................................................................................................28
6.3 Human Resources and Infrastructure.................................................................................................................32
6.4 Financial Resources ...............................................................................................................................................34
6.5 Budgeting ................................................................................................................................................................35
7. Pilot Project .................................................................................................................................................................40
7.1 Location – Arni, Yavatmal, Maharashtra...........................................................................................................40
7.1.1 Rationale for Choosing Location.................................................................................................................41
7.2 Pilot Project Activities...........................................................................................................................................43
7.3 Human Resources and Infrastructure.................................................................................................................46
7.4 Pilot Project Budget...............................................................................................................................................48
8. Stakeholders.................................................................................................................................................................53
8.1 Local.........................................................................................................................................................................53
a. Farmers..................................................................................................................................................................53

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b. Moneylenders.......................................................................................................................................................53
c. Landlords ..............................................................................................................................................................54
d. Village Council.....................................................................................................................................................54
e. Cotton Buyers and Sellers ..................................................................................................................................55
8.2 State..........................................................................................................................................................................55
a. District Administration.......................................................................................................................................55
b. State Government ...............................................................................................................................................56
8.3 External ...................................................................................................................................................................57
a. Our Client/Donor (IFAD) ................................................................................................................................57
9. Challenges.....................................................................................................................................................................58
9.1 Organizational Challenges....................................................................................................................................58
9.1.1 Corruption amongst village agents..............................................................................................................58
9.1.2 Maintaining authenticity of inputs...............................................................................................................59
9.1.3. Transportation of inputs to farmers...........................................................................................................59
9.1.4. Coordinating the sale of cotton ..................................................................................................................60
9.2 Contextual Challenges...........................................................................................................................................61
9.2.1 Farmer Uptake................................................................................................................................................61
9.2.2 Overlap between Public/Government and Private Schemes.................................................................62
9.2.3 The political economy of village heads, moneylenders and landlords...................................................62
10.Monitoring and Impact Evaluation..........................................................................................................................65
10.1 Impact Evaluation ...............................................................................................................................................65
10.2 Monitoring Yields - Annual Survey ..................................................................................................................66
10.3 Monitoring Debt Levels - Annual Survey........................................................................................................67
10.4 Monitoring Suicide Levels..................................................................................................................................68
11.Next Steps: Scaling Up...............................................................................................................................................69
11.1 Scenario 1: Lack of profitability ........................................................................................................................69
11.2 Scenario 2: Profitability and Self Sufficiency...................................................................................................70
Appendix............................................................................................................................................................................71
A. Process and Costs of Cotton Farming...............................................................................................................71
B. Pilot Project Expenditures...................................................................................................................................76
C. Interview with an expert ......................................................................................................................................77
D. State and Local Administration Hierarchy in India...........................................................................................82
Endnotes ............................................................................................................................................................................83

4. 3
Who we are
Our client
Pragati (Hindi for “progress”) is a trusted non-governmental organization established in
2005 and based in Mumbai, India. We strive to provide support for rural peoples
through agricultural development, offering assistance through fundraising and project
implementation. Our mission is to act as a support system promoting the well-being of
Indian farmers through agricultural development. In the past, Pragati has been involved
in projects such as advising on the construction of irrigation infrastructure for rural
farms, providing technical assistance in farming methods, and conducting financial
literacy workshops for farmers.
The International Fund for Agricultural Development (IFAD) is a specialized agency of
the United Nations, and was established as an international financial institution in 1977 to
finance agricultural development projects primarily for food production in the developing
countries. IFAD funds projects for rural development, tribal development, women’s
empowerment, natural resource management, and rural finance around the world.

5. 4
List of acronyms
ABSUMI Agricultural Bank of Sudan Microfinance Initiative
DM District Magistrate
IBBL Islami Bank Bangladesh Limited
IFAD International Fund for Agricultural Development
IFFCO Indian Farmers Fertiliser Cooperative
INR Indian Rupees
MENA Middle East and North Africa
MSP Minimum Support Price
NAIS National Agriculture Insurance Scheme
NCRB National Crime Records Bureau
POP Point of Purchase
RDS Rural Development Scheme
RKBY Rashtriya Krishi Bima Yojana
SH Sankata Harana
SMART Specific, Measurable, Attributable, Realistic and Targeted
TK Bangladeshi Takas
UAM Union Agriculture Ministry
WB World Bank

6. 5
1. Executive Summary
Many farmers in rural India have been, and continue to be, trapped in a cycle of debt. Irregular weather
patterns and lack of proper inputs can lead to poor yields. Consequently, farmers are forced to borrow
from moneylenders on the black market who charge steep interest rates. A plentiful harvest can turn
farmers’ fortunes around, but compounded with high initial loans and the risk of subsequent poor
yields, farmers often fail to make adequate profit to pay their debts back.
Thousands of farmers see no end in sight and end up taking their own lives. Maharashtra, a state in
Central India, has one of the highest incidence of suicides among farmers. The debt burden is left to
farmers’ families, who are forced to deal with the same problem.
Although India’s national and state governments have tried various schemes that have dealt with
farmers’ problems, none have successfully broken the debt cycle. This paper proposes a crop
finance/agriculture venture capital model that will provide farmers with the necessary inputs (seeds,
fertilizer, pesticides, etc.) at the start of the year, and collect a portion of the farmer’s profits at the
end of the year. We expect this to break the debt cycle and make the farmer more self-sustainable,
thus reducing the incidence of farmer suicides.

7. 6
2. Background
In Central India, there is a large and increasing problem with farmers committing suicide. Many of
these farmers take out loans from moneylenders, who are often the only source of credit in rural
areas. Farmers are unable to pay back these loans, get caught in a cycle of debt, and end up committing
suicide. The “Big 5” states of Central India (Maharashtra, Karnataka, Andhra Pradesh, Chhattisgarh,
and Madhya Pradesh) have seen a rise in farmer suicides, and account for 64% of the total farmer
suicides in the countryi
. A significant portion of this figure comprises of cotton farmers. With their
deaths, these farmers leave behind massive debt with only their next-of-kin to carry on the burden.
Figure 1. Farmer Suicides in India
Source: Down to Earth Magazine, November 2011
(http://www.downtoearth.org.in/content/45-farmers-commit-suicide-each-day-india)

8. 7
Following two years of drought in 1965 and 1966, the Indian government made a push for genetically
modified seeds, believing them to be high yielding. Combined with generous government subsidies,
farming yields saw an initial increase over the next two decades. However, the overuse of chemical
fertilizers and the genetic variety of crops used led to a decline in yields after initial success.
In 1991, as an outcome of economic liberalization, the Indian government decided to slash farming
subsidies. In response, farmers increasingly began to switch to commercial crops and use genetically
modified seeds in order to compete in the global marketplace. As the price of crops fell with increased
competition, agricultural returns decreased. Farmers began to resort to more expensive inputs in the
hope of higher yields and thus higher returns. Thus, as capital requirements rose, farmers had to take
out larger loans to cover increasing costs, and expected that larger yields would provide them with
enough returns to relieve them of their debt.
Economic reforms have opened Indian farmers to global competition and reduced cotton prices. The
near domination of genetically modified seeds in the marketplace has been coupled with a price
increase to twice that of ordinary seeds. Farmers often have to turn to moneylenders in the black
market since they don’t qualify for bank credit.
The Data
According to the United Nations Division for Sustainable Development, over 100,000 farmers in
India have committed suicide since 1997, which adds up to about one every 32 minutes. The latest
National Crime Records Bureau (NCRB) data shows that farmer suicides rose sharply by almost 450
in the Central Indian state of Maharashtra in 2012 to touch 3,786 (the state recorded 3,337 suicides in
2011). This is Maharashtra’s worst annual increase in seven years. It also brings the state’s total tally
to a staggering 57,604 farmer suicides since the NCRB began recording farm data in 1995ii
. In 2012,

9. 8
Maharashtra had the highest number of farmer suicides in India at 3,786, which is 50% more than the
next highest state of Andhra Pradesh.
Figure 2: States with the Highest Incidence of Farmer Suicides
Source: National Crime Records Bureau (2012)
(http://en.wikipedia.org/wiki/National_Crime_Records_Bureau)
3,786
2,572
1,875
1,172
1,081
745
564
499
344
276
270
146
119
75
68
29
19
18
14
11
10
10
10
4
1
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000
Maharashtra
Andhra Pradesh
Karnataka
Madhya Pradesh
Kerala
Uttar Pradesh
Gujarat
Tamil Nadu
Assam
Haryana
Rajasthan
Odisha
Jharkhand
Punjab
Bihar
Himachal Pradesh
Sikkim
Tripura
Uttarakhand
Arunachal Pradesh
Meghalaya
Mizoram
Jammu & Kashmir
Chhattisgarh
Goa
Number of Deaths
Farmer Suicides in India by State, 2012

10. 9
3. Causes
The causes for farmer suicides can be grouped into four categories: environmental, social,
psychological, and financial. These do not exist in isolation; instead, they are often intertwined with
each other, creating a much larger and complex problem that is difficult to solve.
3.1 Environmental
If nature were fair and predictable, we would not see such a high level of farmer suicides in India –
but this is not the case. Farmers living in the states of Maharashtra and Karnataka are subject to
droughts and floods which occur every few years and result in large crop failures. In this region of
India, farms are often planted with monocrops (single-variety crops) which depend on timely
monsoon rains to be productive and profitable. In years where there is no drought, farmers may be
able to produce enough cotton to sell in order to be able to buy inputs for the next year. But when
exogenous environmental shocks hit, these farm systems are unable to regenerate or “bounce back,”
and farmers slowly fall into debt.
Furthermore, droughts and floods sometimes occur in consecutive years, not allowing farmers the
time to recoup their losses with a good crop the next year. A lack of effective irrigation infrastructure
is also a significant part of the problem, as it relies heavily on government provision which is lacking
in rural areas.
Since farmers rely heavily on environmental factors such as rain, a dry year can trigger a series of other
problems that can ultimately lead to a farmer’s suicide. Additionally, many rural areas lack access to
either natural or man-made irrigation systems such as streams and rivers, making dry weather harder
to cope with.

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3.2 Social
While the unpredictability of the environment plays a significant role in contributing to farmer suicides,
a number of social issues can also act as catalysts to this problem. When interviewed, many widows
of farmers say that “drinking is a major problem for most of the familiesiii
.” Studies have shown that
alcoholism plays a significant role in suicide in India: alcohol dependence and abuse were found in 35%
of suicides. Around 30-50% of male suicides were under the influence of alcohol at the time of suicide
and many wives have also been driven to suicide by their alcoholic husbandsiv
.
There are also social and cultural norms that prevent farmers and their wives from getting the help
they need. Farmers borrow money at high interest rates from local moneylenders, but when they are
unable to pay back their loans and begin to receive threats from these shylocks, they do not “go to
the police about moneylenders because they are afraid they will need a loan in the futurev
.” The power
dynamic between farmers and shylocks is self-perpetuating and fuelled by fear, continuing the cycle
for the family even after the farmer’s death.
Farmers also realize that the world is increasing becoming competitive, and are cognizant of the fact
that their children need a good education to break out of the poverty cycle. However, some farmers
become unsustainably aspirational, insisting on sending their children to private schools instead of
government ones: “they are going for false prestige, they don’t really take note of their own financial
statusvi
.” To these small farmers, the social value of having an educated child is worth more than the
economic losses that they have to suffer.

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3.3 Psychological
Depression amongst farmers is a strong indicator of the propensity for a farmer to commit suicide.
Debt-ridden farmers face immense mental pressure, especially as they are often the sole earner for the
entire family. These adverse conditions can sometimes lead to depression, which results in suicide.
This exacerbates the problem irreversibly, especially since it is known that their debt will not be erased,
but will be passed on to surviving family members. Farmers turn to suicide because they cannot see
past immediate problems and are unable to cope with the disappointment of failed crops.
In addition, suicide in India is not seen as a terrible result of clinical depression, but as a “natural
consequence of bad moral choicesvii
.” Farmers who suffer from depression are thus held back by
social stigmas about their condition and do not seek psychological counseling – some even refuse to
confide in their spouses for moral support about the challenges on the farm. Furthermore, the absence
of rural mental health services and public awareness of mental health disease does little to help the
problem of farmers contemplating suicide.
3.4 Financial
Insurmountable debt faced by farmers has been argued to be, by far, the biggest underlying cause of
farmer suicides. According to a study by the Indian government, about 60% of those who committed
suicide in Maharashtra had debts between US$110 (INR 6,680) and US$550 (INR 33,420)viii
.
After a bad year of drought or poor crop yield, a farmer has no profits to buy the necessary inputs for
the following year. In many cases, he also does not have enough savings from previous years to cover
future inputs costs. The farmer then takes loans from local moneylenders in order to purchase seeds
and fertilizers for the upcoming year in the hope of a better harvest. However, if the droughts happen
in sequential years, the farmer once again makes a loss for that year, adding on to the debt incurred in

13. 12
the previous season. The cycle is perpetuated as the farmer borrows more and more money from
shylocks at high interest rates, and eventually finds himself in debt with no way out.
Another contributor to this cycle of debt is also the type of seeds that these farmers buy. Cotton
farmers in Maharashtra buy Bt Cotton seeds, a genetically modified seed variety that produces higher
yields, but cannot reproduce seeds for the next harvest. As a result, farmers have to purchase new Bt
Cotton seeds at the start of every farming season and pay with ready cash. In addition to the non-
renewable nature of Bt Cotton seeds, farmers are often sold spurious seeds that have low yields. Such
genetically modified seeds are also more expensive than traditional seeds, but farmers still purchase
the expensive varieties as these comprise a lion’s share of the market. Moreover, genetically modified
seeds are expected to be more resistant to pest attacks, and thus are predicted to have higher yields.
The recurring cost of seeds is not the only thing farmers are spending on. Farmers also take out loans
to hire drilling companies to dig bore wells, but disappearing underwater aquifers make finding water
a challenging task. In an attempt to mitigate the risk of depending on the weather, some farmers try
to branch out by borrowing money to take up other jobs or transition to different types of crops, but
often meet with failure.
These four causes are inexplicably intertwined, and any combination of these can lead to a farmer
committing suicide. Bad weather results in crop failure and debt. Debt, alcoholism, and social stigmas
lead to depression. Depression can lead to hasty financial decisions, exacerbating debt and depression,
and eventually suicide. While some wives may say that their husbands committed suicide because of
alcoholism or depression, the common theme amongst all suicides is the incidence of debt. As such,
in our proposal we will look at debt as being the primary cause of farmer suicides in India, and make
recommendations on addressing this problem through a financial framework.

14. 13
4. Current and Past Attempts at Addressing
the Problem
In the past, the Indian government has attempted to address the problem of farmer suicides through
various crop insurance schemes, but these efforts have been woefully inadequate. The programs have
failed to address the debt trap, which is one of the primary reasons for failure.
In its current form, crop insurance is financially unsustainable. Existing crop insurance schemes are
mostly focused on individual states or regions. The issue that arises is related to reimbursements: in
the event of a bad year, the majority of farmers on crop insurance will try and get reimbursed. This
creates a problem where a scheme may not have the adequate funding (from premiums) to reimburse
everyone at the same time without taking on great losses. Therefore, an insurance scheme with poor
financial health has a high risk of failure. Furthermore, the process of obtaining insurance payouts has
often been arduous and slow. Weather and yield-based insurance plans have also proven to be
unsustainable due to the difficulty in matching historical weather trends to future performance as well
as distinguishing between actual damage due to weather and inherent poor quality of the crop.
Farmer suicides started to become a significant problem when the Indian government privatized and
liberalized its agriculture industry. Rather than using seeds that they had saved, farmers started using
genetically modified seeds. The changes imposed by the World Bank’s (WB) structural adjustment
program led to many uncertainties for farmers. Many small farmers quit the profession. Those who
continued farming but could not adjust to the changes in the market have suffered. The national
government and the various state governments have attempted to create different schemes to address
the issue.

15. 14
4.1 Government of India Programs
In 2006, the government of India created a rehabilitation package amounting to US$3.19 billion (INR
191.6 billion) that covered 31 districts and four states. The four states were Andhra Pradesh, Karnataka,
Kerala and Maharashtra. The project was initially supposed to be implemented until 2009, but the
government extended the implementation period to 2011. As part of this package, the Union
Agriculture Ministry (UAM) created guidelines that help determine which farmer suicides are eligible.
A victim’s family is eligible for compensation if they meet all 40 conditions listed.
An example of shortcomings in government programs can be seen in an initiative implemented by the
government of Karnataka. At the onset of this particular program, the state government paid
US$1,667 (INR 100,000) to the families of victims. However, suicide rates kept increasing, possibly
because the compensation was large enough that it encouraged farmers to take their own lives in
exchange for the payout. Rather than solving the problem, one could argue that this scheme further
exacerbated the issue.
Another possible reason for increasing suicide rates is the farmers’ inability to get compensation from
the government. The bureaucratic nature of the schemes is inefficient in dealing with social issues that
need immediate attention.
4.1.1 Examples of Government Relief Measures
Various relief measures are available for farmers, offered by both the national and state governments.
The schemes include but are not limited to: Rashtreeya Krishi Bhima Yojana (RKBY), Minimum
Support Price (MSP), Sankata Harana (SH), and the National Agriculture Insurance Scheme (NAIS).
These schemes mainly include the sale of seeds and other agricultural products to farmers at subsidized

16. 15
rates, training in the operation of new agricultural technology, and the provision of a crop loan by the
banks at a 3% interest rate. Below, we provide an overview of some of those schemes.
a. Rashtriya Krishi Bima Yojana (RKBY)/National Agriculture Insurance Scheme (NAIS)
The Rashtriya Krishi Bima Yojana (RKBY) is a crop insurance scheme that was first introduced and
implemented at the state level from 1985 to 1999. It was later adopted by the government and became
the National Agriculture Insurance Scheme (NAIS). NAIS was introduced by the national government
in 1999. The purpose of this scheme was to provide insurance coverage for farmers in bad years when
crops failed due to natural exogenous factors. An underlying aim of this scheme was to encourage
farmers to use better farming practices to increase yields. Within the scheme, any debt owed by the
farmer would be waived in the case of his death. Furthermore, in the event of a death, compensation
would be provided to the family.
This scheme has several problems. First, it can be difficult to receive compensation in bad years.
Secondly, and more importantly, the family debt relief option under the scheme – although put in
place with good intentions – has the capacity to further increase farmer suicide rates. A farmer who
owes a large debt to a lender could take his own life in order to reduce the debt burden on his family.
b. Minimum Support Price
The government introduced the MSP in order to reduce the level of uncertainty in prices faced by
farmers. Under this scheme, the government mandated minimum prices for crops, including but not
limited to: maize, paddy, tea, soybean, cotton, and others. Such a scheme would reduce uncertainty
for the farmer by guaranteeing them a certain price for their crops.

17. 16
c. Sankata Harana (SH)
The SH scheme was introduced in 2001-2002 by the Indian Farmers Fertilizer Cooperative (IFFCO).
Under the SH scheme, farmers who purchased fertilizers through cooperative societies would be
eligible for financial relief in the case of that farmer’s death. This also added to the moral hazard
problem where farmers are incentivized to commit suicide in order to receive compensation for their
families.
d. Karnataka State Agriculture Budget
Karnataka is the first state in India that has an Agriculture Budget, which was undertaken in order to
help the agriculture sector. The main points of the budget are:
 Provision of crop loans at a 1% interest rate. US$2.98 billion (INR 178.6 billion) in loans is
set aside for agriculture and irrigation sector development.
 Cooperative company crop loan interest rates will be reduced from 3% to 1% on loans to
US$5,000 (INR 300,000).
 In order to develop and improve the farmer’s families, US$16.67 (INR 1000) is provided to
10 families under the Suvarna Bhoomi Yojana Scheme.
 US$333 million (INR 20 billion) is set aside and used to encourage farmers to practice organic
farming.
 Interest free loans are provided to farmers children in order to help provide those children
with higher education.
4.1.2 Dharwad Case Study
The Dharwad case study is an excellent example of the deficiencies of government programs, and can
be used as a proxy to study the deficiencies of government agricultural programs in India.

18. 17
Between 2003 and 2010, the Dharwad district had 75 farmer suicides on record. Under the
compensation scheme, a thorough enquiry was made by a committee (for each case) in order to
determine if those farmers’ families were eligible for compensation. Compensation was only paid to
21 out of the 75 families (28%). As part of the compensation scheme, each of the 21 families received
US$1,667 (INR 100,000) from the government. This example shows the inadequacy of current
compensation schemes. The requirements for compensation are too high, and it is difficult for families
to meet all 40 of the requirements as underlined by the government guidelines. Furthermore, out of
the 75 cases of farmer suicides in the district, only 15 families were compensated for the crop insurance
that they had in place. This further demonstrates the inefficiency of the system.
Out of the 75 farmers that committed suicide, 19 of those farmers had taken crop loans from financial
institutions. However, the true number of indebted farmers could be larger as many farmers choose
to take out loans from private moneylenders who are unaccounted for. A very small percentage of
farmers had taken out loans from financial institutions that charge far lower interest rates than private
lenders. One reason for that is the lack of knowledge on the part of the farmers about such schemes.
Another possibility could be the difficulty in obtaining a loan from a financial institution, due to the
paperwork and time required to get a crop loan.
The Ministry of Agriculture has implemented a helpline for farmers throughout the country. The
purpose of this scheme is to provide farmers with a way to get easy access to information. The service
can educate farmers on farming related topics, and can provide the help and advice needed when they
are experiencing trouble with their crops. As part of the study, the families of the 75 farmers who
committed suicide were asked if they were aware of such a service. Out of the 75 families, 45 (60%)
did not know about the helpline, and out of the 30 farmers who knew about the service, only 7 (23%)

19. 18
had used it. This example shows that the government of India has not been doing a good job when it
comes to educating the farmers about the options that are available to them.
4.2 Measures Undertaken by NGOs
India does not have adequate mental health services, especially in rural areas. There are approximately
3,500 psychiatrists within the country. In light of inadequate infrastructure and support for individuals
suffering from depression and suicide-prone illnesses, many NGOs have cropped up in both rural
and urban India with the goal of providing support for such individuals.
Such NGOs are an access-point for individuals that need assistance. Once the door has been opened,
the organizations can provide professional counseling and mental health. The NGOs have also
attempted to bring the issue of suicides to light by raising awareness in the public and the media.
However, it must be pointed out that there is a lot of variation in the quality of NGOs. Many of these
NGOs hire volunteers, where there is a lot of variability in expertise. Furthermore, there is a lack of
proper quality control measures within these NGOs, and no proper monitoring or evaluation is
undertaken.

20. 19
5. Potential Options
5.1 Maintain status quo
Our first option is to maintain the status quo. Existing environmental, social, psychological and
financial constraints will continue to thrive and we expect there to be no reduction in farmer suicides.
Therefore, it is imperative that an external solution be implemented.
5.2 Counseling & Mental Health Support
There are various models of counseling and mental support that could be employed. The idea would
be to help farmers deal with the depression that often leads to suicide. The assumption of this model
is that depression is a significant causal factor behind farmer suicides and confronting poor mental
health would therefore be the most effective option.
Because farmers reside in rural areas, they often lack common services that would otherwise be
available in an urban setting. People who are fortunate enough to recognize and accept that they
may be depressed have the chance to seek counseling, given they have the time and resources.
A rural model that would provide counseling and mental health support would have to be community-
based. Since rural communities are small, farmers are more comfortable talking to people they know
rather than mental health professionals from urban areas. Fellow villagers would have to be involved
as they would be the closest persons available. Self-help groups can act as a support system that
farmers could go to at their own discretion.

21. 20
A second alternative could involve women-led counseling groups. These women would act as
counselors who actively make an effort to identify depressed farmers around the community. Current
projects in states such as Maharashtra and Andhra Pradesh involve holding telephone calls or video
conversations with mental health practitioners in cities. Automobiles with the required technology
infrastructure travel to different villages so that farmers can receive consultations.
While such a model would offer solutions aimed at dealing with farmers’ mental health, it may not
necessarily address the vicious cycle of debt. Farmers would still be subjected to droughts that damage
crop yields, and would still be in debt. In the short term, we would not see a significant change in
farmer suicide rates in the region since the program would need time to take effect. Feedback from
various parties would be required, which could be time-consuming, expensive and unmanageable.
Lastly, an impact evaluation of these services would be difficult to administer. We would expect to see
a reduction in the number of farmer suicides and an overall improvement in farmers’ health and well-
being, although the degree of efficiency may be difficult to measure.
5.3 New Crop Insurance
A crop insurance plan could be implemented to deal with the cycle of debt that entraps cotton farmers
across India. This would address the incremental loan required by farmers to cover losses due to poor
agricultural returns.
There have been previous attempts at setting up a viable crop insurance scheme. Initial attempts by
the central government intended to simply provide a payout for individual farmers if their crop failed.
The scheme proved to be unsustainable since there were too many farmers who needed a payout and
too few who could provide funding for the rest; each farmer was subject to the same type of risk. In

22. 21
such an environment, there are no private firms willing to enter the market. Later insurance plans also
failed to diversify risk. Insurance schemes were often based on states and regions. If there is a drought,
it is going to affect every farmer. Village group insurance plans faced the same problems. Consequently,
obtaining a payout became an arduous process.
Some insurance plans have looked at mitigating this risk by offering weather-based or yield-based
payouts. Such schemes would examine trends over a ten-year period or assess the quality of the cotton
yield respectively. The difficulties lie in observing these trends and distinguishing real damage from
poor quality cotton. Any new insurance plan would have to account for these problems or accept that
it may not always break-even.
Most importantly, crop insurance schemes are a cure for debt; they are not a preventive measure. Any
financial solutions needs to address the root causes for debt – that of high costs and poor returns.
Crop insurance may actually contribute to the debt cycle, as insured farmers would be more willing to
take out a loan if they believe that they have a crop insurance safety net to tide them over in the event
of poor returns. We believe that any sustainable and long-term solution needs to focus on erasing the
cause of debt rather than providing a mechanism to repay it.
5.4 Crop Finance/Agriculture Venture Capitalism Model
In order to break the cycle of debt, a more viable solution would be to introduce a scheme where
farmers would receive seeds (and other inputs) as a form of credit and repay with a percentage of their
crop yields. Many farmers lack the initial capital necessary to begin farming; they often turn to
moneylenders on the black market who charge exorbitant interest rates. Credit mechanisms based on
principles of Islamic Microfinance would allow farmers to obtain funding for their various inputs

23. 22
without having to pay any interest or provide collateral. Instead, farmers would pay a fixed “mark-up”
on their goods, or pay financiers in crop yields only if and when they produce positive yields.
Because Islamic Microfinance prohibits the accumulation of substantial interest payments, this allows
the farmer to obtain the necessary input without having to bear the risk of repayment in the event of
failure. Instead, financiers would share the risk. However, due to the nature of the policy problem,
financiers would have to accept a high risk of default.
As a starting point, we have to address the issue of seed funding. We would need donors to initially
contribute larger sums of money in order to start a pilot project. This would either require private
donations or government involvement. Given the extensive red tape plaguing the Indian bureaucracy,
it would be more efficient to have philanthropic involvement from other parties in the pilot stage. The
key aspect here would be to provide authentic and not spurious inputs, and thus address some of the
root causes of low yields. Higher yields should lead to higher returns, which in turn can help farmers
become self-sufficient in the long term.
This scheme targets the farmer suicide problem in India by tackling its roots, and may also account
for factors such as weather or other unforeseen circumstances. Rather than dealing with the effects of
depression and farmer suicides, this plan aims to mitigate the initial danger of debt in the earliest stage
of the farming process. This saves farmers from having to enter into predatory financial agreements,
and gives them the opportunity to create savings. Most importantly, this plan focuses on attacking the
existing political economy of rural debt in a way that none of the aforementioned options do. We
believe that such a solution will have maximum impact in comparison to other solutions.

24. 23
Problems with this scheme could stem from the difficulty in observing positive results or sustainability
in the short run. Yields would increase slowly in the short run, but should reach the required levels
(for financial sustainability) for most cotton farmers in the medium-term. Therefore, the scheme may
not be financially sustainable until the medium term.

25. 24
6. Focus of our Model: Crop
Finance/Agriculture Venture Capitalism
As we have discussed earlier, farmers do not possess their own capital to bear the input costs of
cultivation. Consequently, they have to borrow the necessary funds from a variety of sources, which
is the primary causal factor for the constricting debt trap that sometimes forces farmers to commit
suicide. Crop insurance only provides farmers with a potential safety net in case their crops fail and
they are unable to pay off their debts – but it does not attempt to break the cycle of debt. In fact, it
can even be said that crop insurance actually reinforces the existing predatory model as it does not
provide farmers with the alternative of not having to take a loan, but merely provides them with a
means to temporarily pay off moneylenders.
Our organization will be called “Pragati,” which means progress. The objective of this model is to
benefit farmers, and set them on the path of self-sufficiency and development. In other words, our
organization aims at being a catalyst for progress.
The key aim of our model is to target the causal factors of the debt trap and nullify the conditions
which lead it to flourish. Our objective is to provide farmers with alternate means of finance and
capital so that they can reap the benefits of cotton cultivation without having to borrow funds from
predatory moneylenders and other sources. We aim to finance farmers and cultivators that will cover
the separate items required in the cultivation process (see Appendix A). If there is no debt, there is no
harassment, and there is no mental pressure. Farmers can actually concentrate on the cultivation
process and be free from the pressures and worry of having to figure out how to make enough to pay
back their loans. If the objective is to reduce the suicide rate by decreasing the debt burden – the
marginal impact of funds spent (or lost) on crop finance will be much greater than the marginal impact

26. 25
of the same amount of funds that is spent on crop insurance or mental health initiatives. We believe
that the effective implementation of a crop finance initiative, whether through the public or private
sectors, will completely revolutionize cotton farming by empowering farmers and providing them with
a less risky livelihood.
6.1 Basic principles of our model: Islamic Microfinance
Our proposed crop finance model is based on existing principles of Islamic Microfinanceix
. This refers
to “the provision of financial services for low-income populations in which the services provided
conform to Islamic financing principlesx
.” Also referred to as “Ethical Finance,” it is primarily based
on the principle that “money is not an earning asset in and of itself.” In essence, a financier provides
money to an entrepreneur who then uses his or her skills to invest the money in a business venture.
The profit from the business venture is then shared between the financier and the entrepreneur. It is
important to note that profit-sharing is always a percentage of the realized profit, and never a
predetermined lump-sum. However, in the case of loss, the financier loses all of the invested capital
while the entrepreneur only loses time and effort spent on the venture. This is the most distinguishing
feature of this model, as the risk for the venture is borne completely by the financier and not by the
entrepreneur.
6.1.1 Applications of Islamic Microfinance
Experiments with Islamic Microfinance have drawn attention as an innovative and effective means of
alleviating poverty to those excluded from the mainstream banking system through the provision of
credit access.

27. 26
In a 2007 global survey on Islamic Microfinance across 125 institutions, experts showed that Islamic
finance had a total estimated global outreach of 380,000 customersxi
. Although we do not have exact
numbers, we infer from newspaper reports that the market today has tripled to 300 Islamic
Microfinance institutions, offering their services to 1.6 million clients in approximately 32 countriesxii
.
The supply of Islamic Microfinance is mainly concentrated in the Islamic countries of Indonesia,
Bangladesh, and Afghanistan, accounting for 80% of global outreach. These services are also being
provided on a smaller scale in Pakistan and throughout the (Middle East and North Africa) MENA
region, including Jordan, Algeria, Syria, and Yemen.
6.1.2 Successful Experiences with Islamic Microfinance
a. The Case of Islami Bank Bangladesh Limited’s (IBBL) Rural Development Scheme
A similar approach to our model has been implemented successfully in Bangladesh under the Islami
Bank Bangladesh Limited’s (IBBL) Rural Development Scheme (RDS) started in 1995. Bangladesh
has had a long history of operating financial institutions based on Islamic principles with support from
the government. Bangladesh’s rural landscape is similar to that of India; a majority of the population
is engaged in agriculture, lives below the poverty line, and has limited access to formal financial
institutions.
Under the program, instead of cash transfers, loans are provided in the form of capital assets that
individuals can use towards income-generating activities such as agribusiness, farming, self-
employment, and setting up small businesses. Liabilities are redeemed on a profit- and loss-sharing
basis. As of February 2012, RDS disbursed US$580 million (TK 45 billion), benefiting 624,591 people
in 13,373 villages within 61 districtsxiii
. Women constitute 94% of the beneficiaries, of which nearly

28. 27
half (41%) are between the ages of 18-30. An evaluation of the program showed that clients who
joined the program in 2006 have benefitted from a 33% increase in household incomexiv
.
The scheme is primarily funded through the Corporate Social Responsibility arm of IBBL which is
itself financed through the Bank’s investment fund. It has therefore been able to function on a non-
profit basis without financial support from the government or external donors. IBBL has also
established a number of safeguards to ensure long-term sustainability. Given the scheme’s community
development approach, individuals receiving loans are organized into groups, where each individual
serves as a guarantor for other members. Group members meet regularly where field officers inform
members about moral and religious frameworks underlying the scheme and their social rights and
responsibilities towards repayment. Group members also receive other services such as skill training
on entrepreneurship and financial management. The rate of return (based on profit and loss method)
is at 12.5%. Timely repayment is rewarded by a 2.5% rebate, and so a successful member pays only
10% of his or her profit to the bank. RDS’s current repayment rate is staggeringly successful at 99%
of individuals who have made profits from their loans.
b. Evidence of International Donors Supporting Islamic Microfinance
Presently, IFAD is proactively funding and promoting similar initiatives in the Near East, North Africa
and Europe. IFAD’s current pilot projects that are based on similar principles are being carried out in
Sudan, Syria, and Bosnia and Herzegovina where it is testing different contract modalities of the
schemexv
. Although the programs are still in a pilot stage, and we do not have confirmed results of
impact, the pilots are showing positive outcomes. For instance, the Agricultural Bank of Sudan
Microfinance Initiative (ABSUMI), which provides loans for agricultural activities and livestock

29. 28
rearing (among other enterprises) with a loan portfolio of US$700,000, had mobilized savings worth
US$72,000 among its 4,500 borrowers.
6.2 Process of the Model
Our model is a venture capitalist model that seeks to adapt the principles of Islamic Microfinance to
crop finance. The financiers will be donor organizations such as foundations, charities or even
corporations, while the entrepreneurs are the farmers themselves. Donor organizations will provide
capital for the cultivation process to farmers. The farmers will then share a percentage of their end of
the year profits with donor organizations. If the crop fails, due to any reason whatsoever, the donor
organizations lose the money they have invested in cotton cultivation while the farmers lose the time
and effort they spent in cultivating the crop.
The key difference with our model in comparison with traditional forms of microfinance is that at
least initially, inputs for crops will be financed purely from a source akin to a charitable donation. The
objective of this model is not to generate a profit for financiers, but to provide farmers with the tools
and means by which they can earn their livelihood without having to resort to predatory elements.
Therefore, it is imperative that financiers be prepared to lose the entire amount invested for a
particular year in case the crop fails.
Support will be provided to farmers in the seed and fertilizer procurement process, as well as in the
final sale of the crop to traders and federations. This non-monetary support also provides advantages
in terms of monitoring the efficiency of the model as well as of the cultivation process. It ensures that
the funds provided are spent on authentic seeds and fertilizers, and not spurious products that will
considerably lower crop yields. It also provides a mechanism for farmers to get an appropriate price

30. 29
for the produced cotton, while providing financiers with an on-the-ground awareness of the actual
yield and the profits from cotton cultivation.
Each stage of the process is explained below:
Stage 1: Initiation
The focus here is to engage with potential donor organizations and obtain funding for the program.
It is critical that the program be marketed not from a profit-making point of view, but more from a
social responsibility point of view. It is imperative that donor organizations be clear that they bear the
entire risk if the crop fails, and that in such cases, there will be no profit for the farmer to share with
them.
Once donors are on board, the next step is to engage with the farming community in focus. The
financing mechanism will need to be clearly explained to farmers to get their buy-in. Once farmers
have agreed to participate, the agreement details will need to be worked out. In essence, this basically
means that the costs and the profit sharing percentages will need to be agreed upon. A great deal of
information will be needed to calculate this figure including total acreage of arable land possessed by
the farmer, average yields predicted, quality and price of inputs requested, existing market sale price,
etc. Once this hurdle has been crossed, a contract may be signed with the farmer detailing out the
agreed terms and conditions.
There are two issues to consider in signing contracts. Illiterate farmers may be reluctant to sign
contracts without knowing the terms and conditions written therein. Therefore, literate volunteers
from the village community may need to be co-opted to verify the contracts before the farmer signs.
A second issue may be that farmers do not possess titles to their land. However, this will not really
pose a problem since our model does not envisage using land as collateral. All that the model is

31. 30
concerned with is the cost of inputs and the profits generated from selling the harvested crops. It is
not necessary that a farmer owns the land he cultivates for him to participate in this program.
This process will happen during before March.
Stage 2: Finance for Inputs
After agreements on profit-sharing with both farmers and financiers have been concluded, the
requisite amount of finance will be invested in seeds, fertilizers, and other agricultural inputs that need
to be purchased before the pre-sowing stage. The critical aspect here is to ensure the purchase of
authentic inputs, and not spurious variants that are available in village markets. This is where the first
stage of non-monetary support also comes in. Our model envisages direct purchase of inputs from
manufacturing corporations themselves. It will also incorporate the transportation expenses of these
implements to concerned farmers from the point of purchase (POP). Many agri-business
organizations have POPs at large peri-urban centers; therefore, the additional costs of transportation
will not be too high in comparison with the cost incurred in the actual purchase of inputs. Moreover,
buying large quantities would facilitate the provision of discounts and other benefits accruing through
economies of scale.
Finance for labor expenses, if required, will have to be dealt with in a different manner. These expenses
are not a one-time expense, and are incurred throughout the period of cultivation. Accordingly, an
assessment will be done on the amount of labor required for each farmer, which will be based on the
amount of arable land he possesses and his cultivation practices. Once the requisite labor hours are
evaluated, a lump-sum will be provided to each farmer to cover his labor costs.

32. 31
The entire process will need to be completely documented. Area of arable land, quantities, per unit
and total costs of inputs, and the total amount of labor man-hours and the funds provided for labor
will be recorded at the site at the time of delivery.
This process will happen during the months of March to May.
Stage 3: Periodic monitoring and follow up
Once the inputs have been provided to farmers, they proceed with the cultivation process. At this
point, the farmer is left to focus completely on cotton farming. Sites can be visited periodically to
monitor the cultivation process, and provide any non-monetary assistance in the event of unforeseen
difficulties. For example, information may be provided on weather patterns allowing farmers to
evaluate whether they need to adjust practices during the sowing or growing periods. Other forms of
assistance may entail liaison with village authorities to provide labor if required. Information generated
through these periodic visits will also be transmitted back to financing organizations so that they are
kept completely aware of the health of their investment.
This process will happen during the months of June to September.
Stage 4: Harvesting and Profit
The final key stage comes during the harvesting and sale season. The model does not seek to intervene
in the harvesting process. However, it seeks to streamline the sale of cotton. Traders and federations
will be contacted either prior to or during the harvesting to agree upon prices that are either greater
than or equal to the MSP. In essence, we will identify certain traders or federations to whom we will
arrange the sale of the crop at competitive prices. As a significant area will be covered, it will be
possible to compare prices across village centers to determine the higher prices being offered by

33. 32
various federations as well as the quantities they wish to purchase. Accordingly, assistance will be
provided to farmers to transport the plucked cotton to various warehouses where the sale will be made.
At the point of sale, the quantity sold, the selling price and the total profit accruing to the farmer will
be documented. Immediately after the farmer has sold his product and collected his revenue, the profit
will be split amongst the farmer and the financing organizations as per the terms that had been agreed
earlier.
In case a farmer chooses to circumvent our identified buyers, it will be difficult to collect our share of
the profit. Accordingly, such farmers will be identified and input support will not be provided to them
for a period of the time in the future.
In the case of crop failure, the exact reasons for crop failure will be documented. The sites will be
visited to assess damage to the crop, and to evaluate if there is any possibility of generating revenue
for the farmer. If some amount of the crop can be salvaged, it will be harvested and sold as per the
process illustrated above. If the entire crop has been lost, this will be documented and the farmer will
be released of the liability of sharing any profit with the financier.
This process will happen during the months of October to February.
6.3 Human Resources and Infrastructure
To implement the crop finance model effectively, a lean organization will have to be set up. The
primary responsibilities of this organization will be to obtain funding through donor organizations,
and employ staff to engage with farmers for the duration of the process. Operations will not be steady.
Instead, the number of activities will rise and fall at various times of the year.

34. 33
We envisage a hub-and-spoke organization structure. Each district will have one supervising manager
who will be responsible for all activities pertaining to that district. There will be a number of village
agents reporting to this supervisor. We foresee that during peak activities, one village agent per village
will be required. The responsibilities for this village agent during the pre-sowing stages will be to survey
the land cultivated by each farmer in the village and conclude the agreement on initial capital and
profit-sharing. Additionally, the village agent will also be required to coordinate the provision and/or
transportation of agricultural inputs to farmers. During the growing season, when activities are
restricted to periodic monitoring visits, one village agent may be responsible for 5-10 villages.
Activities will again scale up during the harvesting season; consequently, village agent deployment will
be required to be increased to one village agent per village.
There will also need to be personnel based at the district headquarters, whose job will be to coordinate
operations with village agents as well as provide assistance to the supervising manager. Additionally,
they will be required to document contracts and information collected at the village level pertaining
to farmers as well as predicted yields. District headquarter assistants can also monitor weather patterns
and prevailing cotton market prices in real-time, which can then be furnished to village agents in the
field. Ideally, 2-3 assistants will be required at each district headquarters.
A separate location that will serve as the overall organization headquarters will need to be established.
The responsibilities at this location will be to obtain funding and engage with donors, as well as
perform oversight activities of the various district headquarters. The headquarters may be staffed
sparingly until the organization reaches a significant scale.

35. 34
As the number of activities is predicted to vary, a mixture of permanent and temporary personnel can
be employed. Village agents can be either temporary or permanent, as the required number of
personnel will vary depending upon the season. However, all personnel based at district headquarters
as well as the overall organization headquarters will need to be permanent as activities at these
locations will go on throughout the year.
6.4 Financial Resources
Establishing the financial health of the organization will have to be done over two stages. The first
stage will be in the short term when the crop finance model is just being launched and then scaled up.
For the first few years, as farmers begin to move up from a subsistence level of farming, crop yields
will still be low and revenues generated from profit-sharing will not be enough to cover the costs of
funding agricultural inputs as well as other administrative costs that will be incurred. Therefore, initial
funding will have to be provided purely from a developmental point of view. The objective of
spending this money is to reduce farmer suicides by breaking the debt trap. Consequently, the primary
targets for this kind of funding will have to be charitable organizations, wealthy trusts, foundations,
as well as socially responsible organizations. Another mechanism for raising resources would be to
engage with agri-business organizations, especially those that produce seeds and other inputs.
In the second stage, over the long term, the net effect of breaking the debt trap should empower
farmers to further refine agricultural techniques. Farmers may be able to use better quality inputs, and
infrastructure may also improve. This will have a tremendous impact on yields. Therefore, as yields
increase over time, profits generated will also rise. At some point in time, revenues generated from
profit sharing may be enough to break even for that particular year. At this point, the model can be
transitioned into a pure financial services organization that specializes in providing crop finance.

36. 35
Funding from donor organizations may no longer be required, as now we can resort to seed funding
from venture capitalists. However, the business model would still remain unchanged.
6.5 Budgeting
Table 1 provides illustrative income and expenditures for the model. The input and related costs are
on the basis of Yavatmal, a specific district in Maharashtraxvi
which has witnessed a significant
proportion of farmer suicides. Costs for cotton farming are similar across India as most farmers have
access to similar inputs and broadly follow similar cultivation activities.
We have made key assumptions in preparing this income and expenditure statement. These are as
follows:
1. All our costs are shown per acre. We assume organizational costs (personnel, infrastructure,
miscellaneous and others) to be 10% of the total investment costs per acre. Further
justification for this is shown in the pilot project cost structure. The assumption here is that
some non-investment costs such as personnel and miscellaneous costs will increase
proportionately when acreage covered increases. Further justification can be seen in the cost
structure for the pilot project.
2. Farmer debts in Yavatmal are around US$130 or INR 8,000xvii
. We do not have data on land
ownership, therefore we cannot calculate average farmer debt per acre. Hence, we are
assuming average land ownership to be 1 acre per farmer. This translates to average debt of
US$130 or INR 8,000 per acre. If land ownership is higher than our assumed amount, average
debt will decrease which will only have a positive impact on the cost structure.

37. 36
3. We are considering a timeframe of five years. This gives us a clear line of sight into a farmer’s
actual income and expenditure during this period.
4. We will fund the entire cost of cultivation for the first year for each farmer. For every
subsequent year, we will only provide funds for seeds, fertilizers, and pesticides. As seen in
Table 1, this translates to roughly 50% of the total cultivation cost.
5. We have assumed a profit-sharing percentage of 50% of the total annual yield of the farmer
for each year of the five year timeframe.
6. Average cotton yields across India are 194 kg/acrexviii
. The average cotton yield for Yavatmal
is 210 kg/acrexix
. We also have trial data for certain variants of cotton seeds that have produced
yields of up to 800 kg/acrexx
. As we are providing authentic and not spurious inputs, we believe
that this will have a positive impact on cotton yields. Accordingly, we are projecting that yields
will progressively increase across the five year timeframe from 210 kg/acre to 500 kg/acre.
7. Revenue per acre has been calculated based on both the projected yields and the existing
MSP which is US$6.67/kg or INR 4,000/kgxxi
. The MSP is a price floor. Consequently, if
cotton is sold at a market price that is higher than the MSP, revenues will only increase.
However, as cotton prices fluctuate considerably year-on-year, we are basing our calculations
on the MSP.
8. According to a report by the Indian Meteorological Departmentxxii
, the probability of a normal
drought in Maharashtra is 20%, and the probability of a severe drought is 7%. Therefore, we

38. 37
have assumed that one out of every five years will see adverse environmental conditions, and
the entire crop will be lost. Consequently, we have accounted for losses faced by both Pragati
and farmers due to this one bad year.
9. Costs have been grouped into Investment Expenditure, Personnel Expenditure, Infrastructure
Expenditure and Miscellaneous Expenditure. For a further breakdown of each cost grouping
into individual, please refer to the cost structure of the pilot project as well as Appendix B.
From the budget, it is clear that even if there are major environmental shocks once every five years,
farmers will still be able to erase their debt within six years of implementation. Our model will be
profitable in its 10th
year of implementation even after accounting for environmental shocks.

39. 38
Table 1 – Income and Expenditure over a 10-Year Timeframe
Table 1.1 – Income and Expenditure over years 1 to 5
Sr
no
Description
Year 1 Year 2 Year 3 Year 4 Year 5
($/acre) (INR/acre) ($/acre) (INR/acre) ($/acre) (INR/acre) ($/acre) (INR/acre) ($/acre) (INR/acre)
1 Farmer Debt at Year Onset 130 7800 30 1800 21.33 1280 129.33 7760 87.33 5240
2 Total Cost of Cultivation 216 12960 216 12960 216 12960 216 12960 216 12960
3 Amount Funded by Pragati 216 12960 108 6480 108 6480 108 6480 108 6480
4
Amount Funded by Farmer
(2-3)
0 0 108 6480 108 6480 108 6480 108 6480
5
Farmer Debt prior to
cultivation (1+4)
130 7800 138 8280 129.33 7760 237.33 14240 195.33 11720
6 Projected Yield 3 180 3.5 210 0 0 4.5 270 5 300
7
Total Revenue
(MSP*Projected Yield)
200 12000 233.33 14000 0 0 300 18000 333.33 20000
8
Profit Share accruing to
Pragati
50% 50% 50% 50% 50% 50% 50% 50% 50% 50%
9
Pragati Income (Profit
Share*Total Revenue)
100 6000 116.67 7000 0 0 150 9000 166.67 10000
10 Farmer Income (7-9) 100 6000 116.67 7000 0 0 150 9000 166.67 10000
11
Farmer Debt at Year End (5-
10)
30 1800 21.33 1280 129.33 7760 87.33 5240 28.67 1720
12 Pragati Profit (9-3) -116 -6960 8.67 520 -108 -6480 42 2520 58.67 3520
13
Pragati Overall Profit/Loss
since onset
-116 -6960 -107.33 -6440 -215.33 -12920 -173.33 -10400 -114.67 -6880

40. 39
Table 1.2 – Income and Expenditure over years 6 to 10
Sr
no
Description
Year 6 Year 7 Year 8 Year 9 Year 10
($/acre) (INR/acre) ($/acre) (INR/acre) ($/acre) (INR/acre) ($/acre) (INR/acre) ($/acre) (INR/acre)
1 Farmer Debt at Year Onset 28.67 1720 -30 -1800 -88.67 -5320 19.33 1160 -39.33 -2360
2 Total Cost of Cultivation 216 12960 216 12960 216 12960 216 12960 216 12960
3 Amount Funded by Pragati 108 6480 108 6480 108 6480 108 6480 108 6480
4
Amount Funded by Farmer
(2-3)
108 6480 108 6480 108 6480 108 6480 108 6480
5
Farmer Debt prior to
cultivation (1+4)
136.67 8200 78 4680 19.33 1160 127.33 7640 68.67 4120
6 Projected Yield 5 300 5 300 0 0 5 300 5 300
7
Total Revenue
(MSP*Projected Yield)
333.33 20000 333.33 20000 0 0 333.33 20000 333.33 20000
8
Profit Share accruing to
Pragati
50% 50% 50% 50% 50% 50% 50% 50% 50% 50%
9
Pragati Income (Profit
Share*Total Revenue)
166.67 10000 166.67 10000 0 0 166.67 10000 166.67 10000
10 Farmer Income (7-9) 166.67 10000 166.67 10000 0 0 166.67 10000 166.67 10000
11
Farmer Debt at Year End (5-
10)
-30 -1800 -88.67 -5320 19.33 1160 -39.33 -2360 -98 -5880
12 Pragati Profit (9-3) 58.67 3520 58.67 3520 -108 -6480 58.67 3520 58.67 3520
13
Pragati Overall Profit/Loss
since onset
-56 -3360 2.67 160 -105.33 -6320 -46.67 -2800 12 720

41. 40
7. Pilot Project
7.1 Location – Arni, Yavatmal, Maharashtra
We have selected the Yavatmal district in the Central Indian state of Maharashtra to run our pilot
project. Yavatmal is a district located in the eastern region of Vidarbha, in the Indian state of
Maharashtra. The district extends over a total area of 13,584 km2
with a population of 2,775,457
constituting about 2.46% of Maharashtra’s total population (India Census, 2011). From 1991 to 2001,
Yavatmal’s population increased at a rate of 18.35%. However, the latest Census noted a sharp decline
in the decadal growth rate for the period 2001 – 2011 at 12.78%, well below the national average of
17.61% (India Census, 2011).
Figure 3. Map of District Yavatmal
Source: Maps of India, Based on the Indian Census 2011
(http://www.mapsofindia.com/maps/maharashtra/districts/yavatmal.htm)

42. 41
Yavatmal consists of 16 Talukas (administrative divisions). The District Magistrate (DM) appointed
by the State is responsible for all the administrative and financial activities of the district. In India,
rural districts are further decentralized into local administrative subdivisions. A lower level of local
government is the Gram Panchayat, headed by a locally elected representative known as the Sarpanch,
who oversees administrative matters for a cluster of villages (usually 2-3). Each village in turn is led
by a Gram Sabha and Village Council. Yavatmal has 1,207 Gram Panchayats with 6,272 members. For
an organizational chart showing the hierarchy of Indian government, see Appendix D.
The total cultivable area of the district is 898,214 hectares (74.75% of the total geographical area),
which is split amongst food grains, cotton, and other cash cropsxxiii
. Out of this, 401,861 hectares
(44.74%) is used to cultivate cotton. It is not impossible to run a pilot in this district. We will focus
on a region comprising 10 villages around the town of Arni in the center of the district. On average,
each village cultivates about 187 hectares of cotton. Therefore, our pilot project will be run across a
total cultivable area of 1,870 hectares, which translates to about 4,606 acres. In addition, Arni has a
significant cotton market, and has better accessibility and connectivity due its proximity to a state
highwayxxiv
.
7.1.1 Rationale for Choosing Location
The district of Yavatmal has seen some of the highest number of farmer suicides in India. It is at the
heart of the crisis in Vidarbha, a region that reports the highest farmer suicides in the country. Between
the 2000-2012 period, 2,837 farmers committed suicide in the district, and the magnitude of the
problem continues to worsen. According to the most recent figures, 141 farmers had committed
suicide between January and August last year (2013)xxv
.

43. 42
Moreover, the prevailing political, environmental and social conditions are an accurate reflection of
traditional areas where the farmer suicide problem is observed. Weather conditions in the district
swing from one extreme to the other; hot and dry in the summer, and very cold in the winter with
monsoon showers mid-year. These weather conditions are characteristic of the regions located along
India’s central belt. The average annual rainfall is between 900 to 1100 milliliters. While rainfall has
been within range over the past decade, it is untimely rain that severely impacts agricultural
productivity. For example, a recent hailstorm in March 2013 destroyed over 90,000 hectares of the
crop in Yavatmal, completely wiping out the cotton harvestxxvi
.
Additionally, the district is predominantly rural and tribal with 78.42% of the population residing in
rural areas. A low level of industrial development has confined employment opportunities to
traditional occupations such as agriculture, mining, and forestry. 63% of the working population is
engaged in agriculture. The lack of infrastructure in the region has contributed to poor social and
economic development in the region. Consequently, there is a significant lack of opportunities for the
rural poor to pursue non-farming means of livelihood. This is, again, typical of most rural districts
within the country.
As political, social, and environmental conditions in Yavatmal are representative of the Central cotton
growing belt in India, we believe that a test run of our model in this area would provide both internal
and external validity for any evidence which can support the extension of our model to a greater part
of the country.

44. 43
7.2 Pilot Project Activities
Stage 1: Initiation
Two key activities need to be done as part of the initiation stage. These activities must be completed
before March. The key activities are:
I. Funding
o Obtain funding for the pilot in association with the principles enunciated earlier.
II. Outreach and Data Collection
o Engage with Village Councils and farmers to explain the financing mechanism, as well
a step-by-step explanation of expectations, with a clear emphasis on potential benefits.
For the pilot project, we will focus on a profit share of 50% of the total revenue
generated by the farmer.
o Collect detailed data on land ownership patterns, agricultural inputs used (variants of
seeds, fertilizers, pesticides, and others), annual labor costs, potential yields,
procurement and marketing mechanisms, historical and prevailing weather patterns,
water and electricity availability and usage, and cotton cultivation timelines.
o Sign binding contracts or documents once all conditions have been agreed upon and
data has been collected.
Stage 2: Provide Inputs
The main focus of this stage would be to provide all agricultural inputs and resources to farmers. This
must be completed between March and May, or as early as possible. The key activities are:

45. 44
I. Purchase the requisite amounts of particularly high-yielding variants of seeds, fertilizers,
pesticides and other inputs directly from organizations.
II. Arrange for the transportation of agricultural inputs to farmers.
III. Provide cash directly to farmers for labor expenses.
IV. Certify that all goods and cash have been provided to farmers at the time and site of
delivery.
Stage 3: Periodic monitoring
This stage is less intensive in comparison with other stages. The timeline is from May to September,
before harvesting begins. The main activities are:
I. Periodic site visits to monitor the cultivation process.
II. Provide any non-monetary assistance in the event of unforeseen difficulties. (For example,
information on weather patterns and assistance in obtaining agricultural labor)
III. Keep donors apprised on pilot project progress.
Stage 4: Harvesting and Generating Revenue
This is one of the most critical parts of the entire pilot project. Activities will center on the actual
harvesting and sale of cotton, as well as collection of the 50% share of the profit from farmers. This
process will happen from October to February.
In the event that the crop is a success, the key activities will be:
I. Demand-side
o Identify potential buyers in Arni to whom our chosen villages can sell their produce.

46. 45
o Engage with cotton buyers to gain an understanding of prevailing cotton market prices
in the Arni cotton market.
o Finalize cotton quantities and prices with buyers.
o Agree on a window of 2-4 days with buyers, when the produce of all 10 villages can
be brought to Arni for sale and collection of revenue.
II. Supply-side
o Liaise with Village Councils and farmers to ensure that all harvesting activities are
completed prior to the opening of the buying window.
o Arrange logistics and any related support for farmers to transport the entire yield from
the village to the market during the buying window. Economies of scale can be
generated here.
III. Overseeing transactions
o Assign personnel at each buyer’s location to direct farmers to authorized buyers,
monitor cotton handover, and oversee revenue collection.
o Facilitate and monitor transaction between buyers and sellers, and document price,
quantity sold and profit generated by each farmer.
o Collect 50% share of the profit from each farmer as in pre-agreed terms, as soon as
buyer-seller transaction is concluded.
IV. Follow-up
o Certify collection amounts through contracts and related documentation.
o Identify Village Councils and farmers who have violated the agreement in terms of
chosen buyers and inform them that they will not receive inputs for the next five years.

47. 46
In the event of a crop failure, the key activities will be to:
I. Visit sites
o Document exact reasons for crop failure, assess actual damage to the crop, and
evaluate if there is any possibility of salvaging.
II. If any amount of the crop can be salvaged, it will be harvested and sold per the process
illustrated above.
o In case of total crop loss, this will be certified in the presence of the village council
and the farmer, who will then be released of any liability.
7.3 Human Resources and Infrastructure
For a robust execution of the pilot project, our personnel will need to cover 10 villages. We will also
need a regional office with geographical proximity to Arni as an overall coordination and oversight
hub. The regional office will have a lean staff of three personnel, including the operational director of
the project. In addition, we will need to set up another hub in a metropolitan city which will be
responsible for managing donor relationships. The regional office will also have a staff of three
personnel, including the overall project director who will be directly coordinating with donors.
All activities at the village council across all four stages of the pilot will be handled by village agents.
As the number of activities rises and falls, especially during different stages, we will need a mix of
permanent personnel and volunteers. During peak season activities, we will need a total of 10 village
agents (one village agent per village), which can be reduced to four village agents during the monitoring

48. 47
stage (one village agent per 2.5 villages). These four village agents will be permanent personnel. For
the permanent personnel, we will hire recent college graduates from the district itself as they will
possess required knowledge of local conditions and language skills. For our remaining six village agents,
we will hire six volunteers, who will be existing college students. While our permanent personnel will
be salaried employees, our temporary volunteers will be unpaid interns. We believe that experiential
learning and knowledge will be a strong incentive for them to come on board, along with the
opportunity of permanent employment in the future should this start to scale-up.
We propose Nagpur as the location for the regional office. Nagpur is a large urban center about 200
km away from Arni. It has modern infrastructure, and has strong connectivity to major metropolitan
centers such as New Delhi and Mumbai. Moreover, in Nagpur, it will be much easier for us to procure
essential office supplies such as furniture, desks, computers, and access to the internet.
Our operational director will be hired on a permanent basis. We would ideally focus on hiring someone
with experience in microfinance as well as agriculture. For the two supporting personnel at the regional
office, we will hire interns who will be recruited from institutions of higher education in Nagpur. We
will pay these interns a reasonable stipend.
We propose to have Mumbai serve as the location for our headquarters. As real estate in Mumbai is
very expensive, we would ideally not look at renting out commercial spaces. We can run donor-based
operations smoothly even from a small studio apartment, which will be much cheaper. Mumbai will
provide us with all the required facilities and amenities to run a small office. Similar to the two
supporting personnel at the regional office, the main office will also be staffed with two interns who

49. 48
can be sought at the many higher educational institutions in Mumbai itself. We will pay these interns
a reasonable stipend.
Figure 4 indicates the organization structure for the pilot project.
Figure 4: Pilot Project Organization Structure
We will pay our permanent village agents US$10,000 (INR 600,000) annually. This is a competitive
salary for college graduates even in peri-urban centers. For our operational director, we will have a
salary budget of US$25,000 (INR 1,500,000) annually. Additionally, we will have a total budget of
US$16,000 (INR 960,000) for our four interns at both the regional offices and at headquarters.
7.4 Pilot Project Budget
Table 2 provides the expenditure and income details for the pilot project. The key assumptions for
our pilot project are the same as assumptions 3 to 9 in our budget model in section 7.5, with some
slight differences. For the purposes of clarity and convenience, we list them here again:
1. We are considering a timeframe of five years. This gives us a clear line of sight into a farmer’s
actual income and expenditure during this period.
Project Director
(Mumbai)
Operational Director
(Nagpur)
6 Volunteer Village
Agents (Nagpur/Arni)
4 Permanent Village
Agents (Nagpur/Arni)
2 Regional Office
Interns (Nagpur)
2 Headquarter Interns
(Mumbai)

50. 49
2. We will fund the entire cost of cultivation for the first year for each farmer. For every
subsequent year, we will only provide funds for seeds, fertilizers, and pesticides. As seen in
Table 1, this translates to roughly 50% of the total cultivation cost.
3. We have assumed a profit-sharing percentage of 50% of the total annual yield of the farmer
for each year of the five year timeframe.
4. Average cotton yields across India are 194 kg/acrexxvii
. The average cotton yield for Yavatmal
is 210 kg/acrexxviii
. We also have trial data for certain variants of cotton seeds that have
produced yields of up to 800 kg/acrexxix
. As we are providing authentic and not spurious
inputs, we believe that this will have a positive impact on cotton yields. Accordingly, we are
projecting that yields will progressively increase across the five year timeframe from 210
kg/acre to 500 kg/acre.
5. Revenue per acre has been calculated based on both the projected yields and the existing
MSP which is US$6.67/kg or INR 4,000/kgxxx
. The MSP is a price floor. Consequently, if
cotton is sold at a market price that is higher than the MSP, revenues will only increase.
However, as cotton prices fluctuate considerably year-on-year, we are basing our calculations
on the MSP.
6. According to a report by the Indian Meteorological Departmentxxxi
, the probability of a normal
drought in Maharashtra is 20%, and the probability of a severe drought is 7%. Therefore, we
have assumed that one out of every five years will see adverse environmental conditions, and
the entire crop will be lost. Consequently, we have accounted for losses faced by both Pragati
and farmers due to this one bad year.

51. 50
7. Costs have been grouped into Investment Expenditure, Personnel Expenditure, Infrastructure
Expenditure and Miscellaneous Expenditure. For a further breakdown of each cost grouping
into individual, please refer to the cost structure of the pilot project as well as Appendix B.
Table 3 provides the cash flow statements per projected incomes and expenditure for the five year
period. The assumptions made are the same as above.

52. 51
Table 2: Expenditure and Income 5-year projection
Sr
No
Description
Year 1 Year 2 Year 3 Year 4 Year 5
Amount
(US$)
Amount
(INR)
Amount
(US$)
Amount
(INR)
Amount
(US$)
Amount
(INR)
Amount
(US$)
Amount
(INR)
Amount
(US$)
Amount
(INR)
Expenditure
1 Investment Expenditure 994,896 61,397,980 479,024 29,155,980 479,024 29,155,980 479,024 29,155,980 479,024 29,155,980
2 Personnel Expenditure 101,000 6,060,000 101,000 6,060,000 101,000 6,060,000 101,000 6,060,000 101,000 6,060,000
3 Infrastructure Expenditure 13,000 780,000 13,000 780,000 13,000 780,000 13,000 780,000 13,000 780,000
4 Miscellaneous Expenditure 15,000 900,000 15,000 900,000 15,000 900,000 15,000 900,000 15,000 900,000
5 Total Expenditure (1+ 2+3+4) 1,123,896 69,137,980 608,024 36,895,980 608,024 36,895,980 608,024 36,895,980 608,024 36,895,980
Income
6 Projected Yield (qt/acre) 3.00 3.00 3.50 3.50 0.00 0.00 4.50 4.50 5.00 5.00
7 Total Revenue 921,246 55,272,000 1,074,787 64,484,000 0 0 1,381,869 82,908,000 1,535,410 92,120,000
8 Profit Share accruing to Pragati 50% 50% 50% 50% 50% 50% 50% 50% 50% 50%
9
Pragati Income (Profit
Share*Total Revenue)
460,623 27,636,000 537,394 32,242,000 0 0 690,935 41,454,000 767,705 46,060,000
10 Farmer Income (7-9) 460,623 27,636,000 537,394 32,242,000 0 0 690,935 41,454,000 767,705 46,060,000
11 Pragati Profit (9-5) -663,273 -41,501,980 -70,630 -4,653,980 -608,024 -36,895,980 82,911 4,558,020 159,681 9,164,020
12
Pilot Project Overall
Profit/Loss since onset
-663,273 -41,501,980 -733,903 -46,155,960 -1,341,927 -83,051,940 -1,259,017 -78,493,920 -1,099,336 -69,329,900
Table 3: Cash flow statement summary
Sr
No
Description
Year 1 Year 2 Year 3 Year 4 Year 5
Amount
(US$)
Amount
(INR)
Amount
(US$)
Amount
(INR)
Amount
(US$)
Amount
(INR)
Amount
(US$)
Amount
(INR)
Amount
(US$)
Amount
(INR)
1 Funds Available 0 0 460,623 27,636,000 537,394 32,242,000 0 0 690,935 41,454,000
2 Total Projected Expenditure 1,123,896 69,137,980 608,024 36,895,980 608,024 36,895,980 608,024 36,895,980 608,024 36,895,980
3
Amount of Funding Required
(2-1) 1,123,896 69,137,980 147,401 9,259,980 730,630 4,653,980 608,024 36,895,980 0 0
4 Total Income for the Year 460,623 27,636,000 537,394 32,242,000 0 0 690,935 41,454,000 767,705 46,060,000

53. 52
From both income and expenditure and cash flow statements, we see that a total infusion of US$1.95
million (INR 120 million) will be required over the five year period. In Year 1, US$1.12 million (INR
69 million) will be required. This decreases to US$147,401 (INR 9.3 million) in Year 2. However, as
yields are now predicted to increase, funding requirements for Year 3 will fall to US$70,630 (INR 4.65
million). Funding will again rise in Year 4 as we are projecting Year 3 to be a year of crop failure due
to external shocks. Therefore, in Year 4, US$608,024 (INR 36.9 million) will be required. Since we
expect Year 4 to be a good year with high yields, we will not need funding for Year 5.
We project that our pilot project will become profitable in Year 4. Profit for this year is predicted to
be US$82,911 (INR 4,558,020). Year 5 will have higher profits at US$159,681 (INR 9,164,020).
However, over the five-year period, the project will make a net loss of US$1.1 million or INR 69
million. This is because the first two years have low revenues as yields are still low, albeit slowly
increasing. Moreover, a complete loss of revenue in Year 3 will also contribute to this net loss.
However, as has also been shown earlier in the 10 year cost structure per acre, after Year 5 onwards
the project should be profitable except in bad years when the crop fails. Over a five year cycle, enough
profit will be generated over the remaining four years to cover the losses made in the one bad year.

54. 53
8. Stakeholders
8.1 Local
a. Farmers
Role: Farmers are the targeted beneficiaries of the various public and private schemes proposed to
address farmer suicides. Farmers who do not own land but typically lease the land from an absentee
landlord are called “sharecroppers” or “tenants”.
Position: We anticipate buy-in from farmers, given that they would receive capital to cover a
substantial portion of their input costs, and would not need to resort to higher levels of debt. Because
the farmers’ next best option would be to stick with the status quo, they would earn a higher overall
profit as they now have to repay a much smaller amount of debt.
b. Moneylenders
Role: Because farmers have limited access to credit from traditional financial institutions, black market
moneylenders have generally been the only channel through which farmers could access finance.
These moneylenders charge high interest rates on loans, and they are a major contributor to the high
debt levels that result in farmer suicides.
Position: Because the model eliminates or severely restricts the demand for additional finance among
farmers, moneylenders would likely be opposed to this plan. They have generally benefited from the
farmers’ cycle of debt.

55. 54
c. Landlords
Role: Landlords lease their land to farmers. Because many of the landlords are city dwellers (or
“absentee landlords”), it is more efficient and profitable for them to lease out the land rather than
engage in farming activities themselves.
Position: Landlords benefit in the existing scenario as they collecting rent from tenants. Most
landlords would be indifferent towards a new scheme aimed at farmers, given that they would still be
receiving rent.
d. Village Council
Role: The local Village Council and Gram Panchayat are the lowest grassroot representative bodies
that interact with local farmers. The head of the Gram Panchayat, the Sarpanch, is charged with
various administrative responsibilities. Because of the small and varying size of villages, Village
Councils have limited capacity. They do, however, have the most contact with individual croppers and
would have the most information about each client farmer. Gram Panchayats encompass multiple
villages and would have common information across a number of villages. Gram Sabhas – meetings
involving the entire eligible voting population from the village – ensure that Gram Panchayats
faithfully carry out their duties.
Position: Gram Panchayats would have to be involved with the implementation and evaluation
processes of any new program. The Sarpanch would have the massive task of helping to determine
who would participate in the program and work with Pragati’s village agents. Assuming we see a high
demand for our new scheme, the Gram Sabhas would be a significant source of support and

56. 55
information. They would also be interested assisting in implementation with a view to improve both
efficiency and governance.
e. Cotton Buyers and Sellers
Role: Wholesale cotton buyers source their product from local farmers. Because of the competitive
nature of the cotton farming industry, the government has introduced a MSP. In many cases, cotton
traders form a federation and buy in bulk from local farmers. Cotton prices may also fluctuate with
rising supply and demand, and especially in response to global price fluctuations. However, the actual
price does not fall below the government mandated MSP or price floor.
Position: We do not expect wholesale cotton buyers or cotton farmers to oppose our new program.
An increase in cotton in the market would benefit all parties. Wholesale cotton buyers may be more
likely to support our program since they would expect to see more consistent yields and more choice
in choosing their suppliers.
8.2 State
a. District Administration
Role: There are various government actors who would have a role in any new scheme. The three tiers
in the structure of local governance are, in descending order: District, Taluka, and Gram Panchayat.
The administrative head of a particular District is known as the District Magistrate (DM) who is a civil
servant appointed by the government. District-level government is the main contributor of funds at
the local level. The district administration is appointed and is responsible for the entire district – in
our instance, Yavatmal. Yavatmal’s district is divided into 17 sub-divisions (or Taluka). The Taluka is

57. 56
the administrative division of the national government composed of various civil servants. For an
organizational chart showing the hierarchy of Indian government, see Appendix D.
Position: Given that our pilot is fairly small and concentrated over 10 villages in Arni, the district
magistrate (DM) is unlikely to be directly involved. Considering the hierarchical nature of the
government administration and power the DM holds in the district, support from the DM for our
project will facilitate our interactions with officials at the village level. District Officials have their own
objectives, based on our experience from working in India and from our interview with Dr. Srijit
Mishra (See Appendix C). However, we feel that it will be not too difficult to convince DM and district
officials of the logic behind our intervention and they will be supportive of our project.
b. State Government
Role: The state government appoints all administrative officials in the district and organizes Village
Councils and Gram Panchayat elections. The government is also responsible for various schemes and
measures that seek to provide relief to farmers. In addition, the government is also responsible for
supporting agricultural activities and controls a number of organizations that directly deal with farmers.
Position: Suicides in Maharashtra’s Vidarbha region have attracted considerable political and media
attention, much to the detriment of the state and national government. With national elections
currently underway and state elections scheduled later in the year, we do not expect any disruption
from the elections since we plan to begin implementation in January next year. It will, in fact, be an
opportune time for initiation, as there have been a number of campaign visits by politicians across
party lines in the area promising better infrastructure and support. With a new government in place
both at the national and state level, there are increased probabilities that there will be greater
momentum towards positive developments on the infrastructure front, which will complement our

58. 57
efforts. We see no opposition from the state government. In addition, if our model is funded by IFAD,
the government should be extremely supportive of our intervention.
8.3 External
a. Our Client/Donor (IFAD)
Role: The International Fund for Agriculture and Development (IFAD) is a specialised agency of the
UN, and was established as an international financial institution in 1977. IFAD has hired Pragati to
come up with a model that addresses the issues of farmer indebtedness that contribute to the rising
number of farmer suicides in Maharashtra.
Position: We anticipate buy-in from IFAD as they are our client. In 2009, IFAD established a US$40.1
million (INR 2.4 billion) fund to assist farmers in Maharashtra. IFAD finances agricultural
development projects in developing countries, specifically in helping Indian farmers overcome
agrarian distress. With this fund, we believe that IFAD will adopt the model that we propose in this
paper. IFAD has already implemented projects in Maharashtra to help address related issues. We do
not expect any significant opposition to our program from IFAD. A model that attempts to directly
address one of the main causes of farmer suicides (debt) will be beneficial to and is in line with IFAD’s
mission in Maharashtra.

59. 58
9. Challenges
We foresee a number of challenges in establishing Pragati on the ground. These can be either
organizational or contextual. Organizational challenges would be specific to the actual roll-out of each
stage that would affect efficiency and profitability. Contextual challenges would be due to the
prevailing political and socio-economic environment that would hinder effectiveness.
9.1 Organizational Challenges
9.1.1 Corruption amongst village agents
Effective revenue collection is dependent to a large extent on village agents. Village agents are the
primary source of information regarding the actual yield of the farmer, and therefore, the actual
revenue generated. There is an attractive opportunity for a village agent to collude with farmers and
underreport yields. This would result in the organization generating a lower profit than what should
actually be accrued, with the village agent pocketing the difference. Having more than one village agent
overseeing a particular transaction may be one way to address this gap; however, this may lead to a
significant increase in administrative costs. Moreover, there may be a possibility of collusion amongst
village agents to defraud the firm. An alternative method would be to provide farmers with the ability
to report such incidences of fraud if observed. However, instituting such a mechanism would again
increase administrative costs. This strategy will not work if the farmer himself colludes with the village
agent to underreport yields.
Solution: Pragati’s strategy of centralizing the buyer-seller transaction at Arni would serve as a
safeguard against potential corruption. Centralizing transactions at a particular geographic location as
well as a specific time period facilitates the presence of almost all 10 village agents. The possibility of