Annexure – II

(Model Format) Memorandum of Understanding Between Small Farmers' Agribusiness Consortium, New Delhi (Department of Agriculture & Cooperation, Ministry of Agriculture) and The Bank…………………………

This MOU is signed on the ………day of ……………. Month ……… year at …………….by Small Farmers' Agribusiness Consortium ( a Society Registered under Registration of Societies Act 1860) registered office at NCUI Auditorium Building, August Kranti Marg, Hauz Khas, New Delhi, which includes its successors / assigns etc., hereinafter called SFAC on the first part and ……………. Bank (hereinafter referred to as ‘The Bank' which expression that unless repugnant to the context herein shall mean and include its assigns and successors) with registered office at ………….. on the other part.

1.SFAC's focus is to attract private investment for setting up of projects that will link farmers & producer groups to markets, thereby substantially enhancing the opportunities for growth through commercial business activity.

2.The objective sought to be achieved by SFAC in discharging its duties are ….. Venture Capital Assistance and Project Development Assistance to Qualifying Project through participating Bank.

3.This agreement for SFAC Venture Capital Assistance operations with participating Lending Bank will synergize their functions, competencies and projected sector development plans.

4.Whereas The Bank, in furtherance of its desire to play an active role in participation and promotion of investments in Qualifying Agri-business Projects and to coordinate the related activities with SFAC, is prepared to make available term loans / working Capital to Qualifying Agri-business Projects and also facilitate extension of SFAC's Venture Capital assistance (VCA) and Project Development Assistance (PDA) through a single window approach.

5.For the purpose of synergizing the efforts of SFAC for promoting Agri-business Project Development in the country with The Banks' expertise in extending loans to viable agri-projects, SFAC and The Bank do hereby agree to cooperate with each other, for the development of Agri-business sector and related areas and enter into this Memorandum of Understanding (MOU).

6.Whereas SFAC and The Bank are desirous of establishing a formal operational framework to achieve the objectives of agri-business.

7.Whereas SFAC, in order to achieve its objective desired to associate with The Bank for disbursement of VCA and PDA (for preparation of DPR by SFAC empanelled consultants) to Agri-Business projects and to attract private investment for setting up of projects that will link farmers and producers groups to markets, thereby substantially enhancing the opportunities for growth through commercial business activity which in turn will generate ample employment opportunities for rural unemployed and The Bank agreed to disburse the same and to provide term loans / working capital to such Qualified Agri-Business projects and serve as a single window facility on the following terms and conditions.

8. Responsibilities of The Bank

Project Development

•  The Bank has branches and operations in different parts of the country and they are closely linked and accessible to producers and entrepreneurs in the areas covered by their branch network. The producer groups / entrepreneurs / trained agri-business graduates / units in agricultural export zone (AEZ) (called applicant) desirous of seeking PDA can approach nearest branch of the bank along with pre-feasibility report or such other documents giving details of the proposed project for the consideration of The Bank. Such persons may also directly approach SFAC seeking assistance for preparation of DPR under PDA scheme.

•  The Bank will examine the pre-feasibility report and on being satisfied about the background of the promoters and prima facie acceptability of the project, will record their observations and direct the proposal to SFAC for assistance in preparation of DPR by one of the consultants in their panel. The Bank may also directly forward the case to SFAC empanelled consultant for taking up the study on the terms and conditions stipulated by SFAC under advice to SFAC.

•  In respect of cases referred to a consultant directly by the Bank, payment will be made from the funds received from SFAC for preparation of DPR as per the terms and conditions specified by SFAC.

•  The Bank will release the cost of preparation of DPR to those projects founds viable depending on the size, location, and linkage issues on a case-to case basis from the SFAC fund. Intending projects must be over Rs. 50 lakhs (Rs. 25 lakhs in case of NE states and other hilly areas) in size.

•  Thereafter, the Bank will release 25% PDA at the time of forwarding the proposal for preparation of DPR to empanelled consultant, 50 % on receipt of DPR and 25% within fortnight of receipt of DPR.

•  Agri-business projects will need to be directly linked to The Bank to avail project term loans. The Bank will have the flexibility to syndicate any part of the project term loan to other Bank.

•  The DPR received from SFAC or directly from the consultant will be examined in detail by The Bank for sanction of term loan and release of venture capital. A copy of the term loan sanction advice to the borrower will also be forwarded to SFAC for their record.

•  The Bank will maintain separate account for SFAC funds.

9 Venture Capital Assistance

 9.1 As part if term loan appraisal in respect of proposal received from the entrepreneurs or agriculture producer groups for sanction of agricultural term loans. The Bank will indicate the amount of venture capital support from SFAC while working out the funding pattern for qualifying projects. Projects qualifying for venture capital assistance from SFAC should meet the following criteria:

•  Are dependant upon agricultural or allied produce.

•  Provide direct access to producers as assured markets

•  Encourage farmers to diversify into high value crops aimed to increase farm income.

•  Are accepted by The Bank for grant of project term loans after satisfactory techno-commercial feasibility.

9.2 The quantum of SFAC venture capital assistance will depend on the project cost and will be the lowest of the following: -

•  10% of the total project cost assessed by The Bank.

•  26% of the project equity

•  Rs. 75.00 lakhs.

9.3 Higher venture capital assistance can be considered by SFAC to deserving projects on merit and / or to projects that are located in remote and backward areas, North-eastern and hilly States and projects promoted by State /State SFAC's.

9.4 For qualifying projects conforming to the criteria mentioned under para 9.1 above, Bank while considering sanction of term loan for project implementation and tying up the means of finance to meet the total project. The Bank will evaluate the quantum of VCA required keeping in view the stipulations contained in para 9.2 and 9.3. Since, sanction and release of term loan would be subject to availability of VCA from SFAC. The Bank will write to SFAC giving details of the project, its cost and indicating the quantum of VCA recommended for tying up means of financing. The Bank will also indicate when the venture capital funds will be required for project implementation. SFAC will place the proposal before its investment committee and communicate to The Bank the quantum of VCA approved for the project. Upon receipt of confirmation regarding sanction of VCA, The Bank will communicate sanction of term loan to the borrower. In the event, the VCA sanctioned is less than the amount suggested by The Bank, The Bank will discuss with the borrower about tying up the gap in means of finance before disposing off the loan application.

9.5 In case any clarification is needed to determine if projects are qualifying projects or not. The Bank can refer them to SFAC's Project Development Facility, Division of SFAC & PDF Division, who will investigate such proposals which may include site visits and respond to The Bank within 30 days.

9.6 The Bank will provide SFAC with full details of the terms and conditions under which the term loan is sanctioned including repayment schedule fixed for the loan. The Bank will also keeping SFAC posted of the progress in implementation of the project from time to time after the project become operational. The Bank will keep SFAC posted of the performance of the unit on an yearly basis and keep SFAC informed of any unsatisfactory features noticed in the working of the project as and when it occurs. SFAC will have no charge during the currency of the term loan. Once the term loan is fully repaid. The Bank will advise SFAC of the position to enable them to convert their venture capital funding into a loan repayable as per the agreement entered by SFAC with the promoters.

9.7 The Bank will release the term loan in one go or as per the progress in the project implementation after completion of documentation formalities and receipt of funds from SFAC towards VCA. The funds received from SFAC will be retained in a separate account and released for the project implementation as and when requested by the applicant.

9.8 In case of the failure of the project, the Bank may opt for a compromise settlement or resort to legal recourse for recovery of their dues as per the policy of The Bank. While, the Bank will be free to take any such decisions without seeking the concurrence of SFAC, SFAC will be informed of any such decision taken to safeguard its interest.

9.9 The Bank will appoint a Nodal Officer for corresponding with SFAC in all matters relating to sanction and release of assistance under Venture Capital or for the preparation of DPR. The Bank may also provide SFAC with a list of its Regional / Zonal Offices for forwarding proposals received by SFAC and its State functionaries / State Level SFAC's for their consideration.

10. Responsibilities of SFAC

a. SFAC's Project Development Facility (PDF) will maintain a pool of pre-qualified skilled consulting firms and individuals with specific skills to render services at low cost to entrepreneurs and to Lending Banks. SFAC's PDF will address gaps if any in agri-business enterprise skills in an active handholding manner. SFAC will also look to take assistance of specialized Agri-business Groups if some Banks have the capability to undertake PDF role in line with the PDF and Venture Capital Scheme.

b. SFAC's PDF is a generator of potential agri-business projects which can attract investment that will benefit the rural community through increased employment and incomes which can be referred to the Bank.

c. SFAC may assign the services of agri-business specialists from SFAC's PDF from time to time to associate with periodic progress evaluation of SFAC's VCA projects.

d. SFAC will forward proposals received from State Level functionaries / State Level SFAC's to the Nodal Officer of the Bank or Regional /Zonal offices of The Bank for their consideration.

e. The PDF of SFAC will arrange to have DPR prepared by a consultant in its panel promptly on receipt of request from the Bank after satisfying about pre-feasibility report.

f. SFAC will arrange to remit funds required for preparation of DPR under PDA immediately on receipt of request from the Bank in respect of cases directly referred to a consultant by them.

g. On receipt of communication from banks giving details of the qualifying project for VCA, SFAC will place the proposal for VCA before its Investment Committee and communicate sanction to the Bank and the borrower. SFAC will make VCA funds available for the project implementation through the Bank immediately on receipt of communication from the Bank giving details of term loan / working capital proposed to be sanctioned by them.

11. Reporting and Exchange of Information

With a view to minimize paper work and ensure the SFAC is provided with all relevant details of individual projects financed by the Bank with Venture Capital support provided by SFAC and also units assisted for preparation of DPR, and also progress in project implementation from time to time, the following reporting schedule will be observed.

•  Report on utilization of venture capital assistance (VCA) / project development assistance (PDA)  

The Bank will report disbursement made by them in respect of VCA /PDA against funds received from SFAC every time a payment is made. In respect of VCA along with the report on utilization of funds, a report on progress in project implementation would also be sent to SFAC. Such periodical reporting will be sent to SFAC until the project is fully implemented and commercial operations are started. In respect of PDA, the Bank will report if after examining the DPR, a decision is taken by the Bank not to sanction term loan on assessment that the project is not viable.

•  Report on the working of assisted units

The Bank will submit a report on the working of the units financed by them under VCA to SFAC on a half yearly basis indicating whether the operations are in line with the projections and whether the borrowers are adhering to repayment commitments.

•  Reporting of Exceptions

The Bank would also keep SFAC informed of any significant developments with regard to operation of the projects, its implementation and unsatisfactory features if any noticed by them. The Bank will keep SFAC informed of any recovery action initiated by them in the event of failure of the unit to perform or inability of the borrower to meet financial commitments.

•  Project Specific Information

In addition to the above standard reporting by the Bank, the Bank would also provide SFAC with project specific information, if any, sought by it from time to time.

12. Parties Notification

Each of the parties hereto shall promptly inform the other of any of the following events:

1.Any event of which such party becomes aware which, in the opinion of the party, is likely to interfere materially with, or seriously hinder or impair; the implementation of the project, or to interfere adversely and materially with the performance by:

i. The borrower of its obligation under the Facility Agreement with such party; and/or

ii. The guarantor of its obligation under the guarantee given in favour of such party;

2.Any notice given by the borrower to prepay the whole or any part of the loan disbursed pursuant to the Agreement with such party and any amount thereof actually prepaid.

3.In certain circumstances it might become necessary for the Bank to call up the loan and initiate recovery proceedings against the borrower and guarantors if any. The Bank would take all such measures required to protect its interest as well as that of SFAC. While it may not be considered prudent to consult SFAC before taking such actions. SFAC will be informed of the actions taken by The Bank at the earliest.

13. Written Consent prior to Amendment

SFAC and The Bank shall not agree to any amendment that will affect the rights or responsibilities of the other with regard to disbursement or procurement or that may effect the right to recover the money advanced as per the original authorization schedule without obtaining the prior written consent of the other.

14. Parties Independent Decisions

Except as otherwise provided in this MOU, each party agrees that all its decisions, including decisions to take or refrain from taking action concerning the project or a loan agreement to which it is a party, shall be based exclusively on its own judgment, independently of the information provided by, or expected

15. Arbitration

In case of dispute, if any, arising out of this MOU may be resolved through mutual consultation failing which it may be done by way of arbitration by a sole arbitrator chosen by the Bank and SFAC as per Arbitration and conciliation Act, 1996 and venue of the Arbitration will be New Delhi .

16. Channel of communication and notices

a. For the purpose of this MOU, the representatives of the parties shall be:

• I. For SFAC : Managing Director

• II. For The Bank : Chief General Manager / General Manager Agri-Business Group / Priority Sector (To be indicated by The Bank)

b. Either party may, by notice in writing to the other party, designate additional representative/s or substitute other representative/s for those designated in this Article.

c. Any notice or other communication under MOU shall be in writing and shall be deemed to have been duly given or made when it has been delivered by hand, mail, e-mail, cable, or telefax, as the case may be by either party to the other at the appropriate address specified below or such other address as either party may hereafter notify in writing to the other party:

For SFAC : Mailing Address: NCUI

Auditorium, V Floor, August Kranti Marg, Hauz Khas, New Delhi .

Telephone : Fax :………… E-Mail : ………………..

For The Bank : Mailing Address:…………………………………………………………………..
Telephone : …………… Fax : ………… E-mail : …………………..

17. Final Provisions

1. The Memorandum of Understanding (MOU) shall come into force upon its signature by the authorized representatives of the parties hereto and for a term of 10 years.

2. The parties to this MOU shall before expiry of its term review the results achieved under this MOU and consult with each other with a view to deciding whether to extend the term of this MOU. Any extension of the term of this MOU, as aforesaid, may be effected through a simple exchange of letters between the parties.

3. The parties to this MOU may amend any of the provisions of this MOU or enter into supplementary arrangements designed to extend the scope of the present MOU.

4. Either party may terminate this MOU by giving not less than six (6) months advance notice, in writing, to the other party; provided that such termination shall become effective only on the date specified in the termination notice, and provided further that termination as aforesaid shall not, unless that parties otherwise agree, effect any non-cancellable commitments entered into under this MOU with a third party prior to the date of the termination notice. In the event of termination by either party, both parties shall co-operate to ensure that all arrangements made hereunder are settled in an ordinarily manner. In the event of the agreement being terminated the amount already sanctioned and released to The Bank will continue to be operated by the Bank as if this agreement was still operative.

The focal points /contact persons under this MOU will be ……………………………. In witness of the above arrangement, both parties have affixed their signatures hereto on the ……………….. in New Delhi .

For BANK                                                            For Small Farmers' Agribusiness Consortium
CEO of The Bank                                                            Managing Director
Address                                                                                Address

Witness :

(Name & Address)