Capital is among the four fundamental factors of production, playing a crucial role in facilitating the adoption of machinery and technology that enhance labour productivity and organisational efficiency. Regardless of size, all enterprises require capital not only for their establishment but more crucially for their growth. However, many enterprises find it challenging to meet their capital needs through internal resources fully and therefore rely on credit to drive expansion and modernisation.
Economists have long recognised the importance of accessible and affordable capital. The availability of low-cost credit is considered essential for promoting the uptake of technology and developing the necessary infrastructure. Our experience at National Association for Farmer Producer Organisations (NAFPO) further affirms this perspective.
Given that most FPOs start with a low paid-up capital, access to credit is not merely desirable but also essential. In the initial phase of the FPO, credit supports stabilisation. As FPOs grow, credit becomes vital for scaling operations and making strategic investments. For more mature FPOs, credit enables infrastructure development, technology adoption, and growth into Cluster-Based Business Organisations (CBBOs). Nevertheless, FPOs often face persistent challenges in accessing adequate and timely credit across all stages of their growth trajectory. This gap underscores the need for concerted interventions to support the long-term viability and success of FPOs.
Access to credit in the formative stages is particularly critical for the sustainability of FPOs. The inability to access timely credit in this phase can deplete paid-up capital and severely undermine their ability to establish themselves as viable enterprises. At later stages of development, restrictions in credit access can constrain FPOs from expanding operations, diversifying business activities or undertaking investments necessary for long-term sustainability. When the envisioned commercial returns to FPOs and their members are not realised, the broader social outcomes associated with collectivisation might also diminish over time. Although a range of financial organisations, from National Bank for Agriculture and Rural Development (NABARD) to scheduled commercial banks and Non-Banking Financial Companies (NBFCs), have developed credit products for FPOs, significant gaps remain. Notably, there is limited clarity on the overall credit demand or market size of credit for FPOs. This lack of sector-level data hinders lenders’ ability to design suitable financial products for FPOs.
This chapter in the State of the Sector Report 2025, aims to provide a preliminary estimate of the credit requirements of FPOs, drawing on the experience of professionals who have been closely associated with FPOs for several years in their development and operations. The credit market size presented here reflects a snapshot of credit demand at any given point in time. While the estimate may be rudimentary, it is intended as a methodological starting point for further enquiry and sharper estimates in future.
Read the full chapter here.
