Field
Warehousing is a security device which enables the borrower to deliver to the
lender legally valid documents of title and to grant a possessory pledge of
goods stored in the borrower's own plant, mill, refinery or warehouse. The
issuer of the field warehouse receipts creates a legally independent warehouse
within the borrower's premises by leasing the storage area, controlling
movements in and out, and posting prominent signs giving public notice that the
controlled area is operated by the field warehousing company. Access to the
warehouse is controlled either by members of the borrower’s staff who are
temporarily employed by the warehouse company for this purpose, or by members
of the field warehouse company's staff. The warehouse records and inventory
levels are periodically audited. The integrity of the staff (whether permanent
or temporary) and contractual liability of the field warehouse company are
insured under a fidelity and errors and omissions policy.
Visualising
the growing financial needs of the farmers, WDRA licensed two repositories for
facilitating the issue of NWRs. In India, the term ‘negotiable warehouse
receipt’ is defined in Section 2(m) of the Warehousing (Development and
Regulation) Act, 2007 (WDR Act), which came into force from 25th October 2010.
WDR Act provides for issuance of Negotiable Warehouse Receipts (NWRs) by the warehouses registered under this Act.
A "negotiable warehouse receipt" means a warehouse receipt under
which the goods represented therein are deliverable to the depositor or order,
the endorsement of which has the effect of transfer of goods represented
thereby and the endorsee for which takes a good title. A negotiable instrument
is essentially a document embodying a right to the payment of money /goods
[which implies creating a right in favour of some person] and it may be
transferred from person to person. This developed historically from efforts to
make credit instruments transferable; that is, documents proving that somebody
was in their debt were used by creditors to meet their own liabilities. A
negotiable instrument can be transferred to any number of persons before
maturity. The means of accomplishing a transfer from one creditor to another is
by endorsement. It means writing of a person’s name on the back of the
instrument for the purpose of negotiation. There are about 55,000 warehouses in
the country out of which only 735, having a capacity of 6.6 million tonnes,
have valid registration with WDRA. About 50% of this capacity is located in
Gujarat, Madhya Pradesh and Rajasthan, while Jharkhand, Odisha and West Bengal
have just one registered warehouse each. The farmer/trader has no protection
against the warehouse in case of deterioration in quality of produce or
pilferage by the warehouse. The produce stored in such warehouses is generally
managed by collateral management companies and they arrange pledge loans
against such WRs.
Stakeholder wise use of warehouse receipt
finance:
Farmers: As against traditional
loans by banks, loans against WR are quick. WFR brings about better price
realization for farmers, especially small and marginal farmers thereby reduce
poverty. A major impetus on WFR can help government realise their promise of a
50 per cent profit over input cost for farmers.
Money Lender: Lack of access to
institutional credit forces farmers to knock the doors of informal sector that
charges hefty interest rates. A well-developed WRF will kill the back of the
informal sector.
Encourage Scientific Storage: Spoilage
and wastage have become the hallmark of Indian agriculture. It is estimated
that 25-30 per cent of agricultural produce every year is lost due to poor storage
and frail handling post-harvest. Increased usages of WFR will kick-start a
circle of investments in warehousing and fix the missing link in the supply
chain.
Banks: The average tenor of loan
against WHR is around six months. This helps banks with their asset-liability
mismatch issues as they can churn portfolios quickly. Further, lending against
WHR is safer and more liquid for banks. Intermediaries like collateral managers
make the job easier for banks as far as underlying collateral is concerned. WRF
help banks achieve their priority sector lending targets in an efficient
way.
Overall Economy: WRF can
dramatically reduce inter-seasonal price fluctuations. Rural demand has slumped
in recent years, which impacted the overall economy. WRF increases liquidity in
the rural economy, helping consumption. A well-developed WRF system can also
help fix the supply issues, which will lead to a lower inflation-lower interest
rates regime in India.
Advantages of warehouse receipt financing:
Ø Improve farm income
and smooth domestic prices by providing an instrument to farmers to spread
sales throughout the crop year.
Ø Mobilize credit to
agriculture by creating secure collateral for banks.
Ø Help create cash and
forward markets and thus enhance price discovery and competition.
Ø
Provide a way to gradually reduce the role of government in
agricultural commercialization.
Ø
Combine with price hedging instruments to predetermine the cost of future
purchases of sales.
Major constraints in warehouse receipt
financing:
Ø Ø Most of the products of warehouse financing / modus operandi do not reflect the full range of interested stakeholders and are not closely linked to the timely availability of credit hence, identification of common minimum quality items suitable to all stakeholders will help to design the system and thereby improve customer satisfaction.
Ø Lack of awareness
among the grass-root level customers and there are non- uniform complex,
non-transparent models of financing to cater the need of different category of
customers, there is a need to modify these models as per the current conditions
or requirement of clientele, taking into account input and output parameters
along with the process parameters of lending institutions.
