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Agricultural finance

This document provides an overview of agricultural finance in India. It begins with the historical context of agricultural lending, originally done by moneylenders, and the subsequent development of institutional lenders after policy reforms in the 1930s. It then covers various classifications of agricultural finance based on time, purpose, security, and lender/borrower type. The main sources of agricultural credit in India are discussed, including cooperative societies, commercial banks, land development banks, microfinance institutions, and government schemes. Weaknesses in the rural credit system are outlined along with suggestions for improving access to institutional finance. Agency-wise credit data from 2005-2017 demonstrates the growing role of commercial banks in agricultural lending.

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Agricultural FINANCE PRESENTER: KARAN BHANDARI HARSH SHARMA MBA(AB) 1ST Year
Flow of Presentation 3/20/2018 AGRICULTURAL FINANCE 2 Introduction Meaning of Agricultural finance Classification of Finance Sources of Agricultural Finance Agency wise credit flow to Agriculture in India Weaknesses in Rural credit structure Suggestions for improving Rural credit system
Introduction- Agriculture Finance in India (1/2) Professional moneylenders were the only source of credit to agriculture till 1935 They use to charge unduly high rates of interest and follow serious practices while giving loans and recovering from borrowers As a result, farmers were heavily burdened with debts and many of them perpetuated debts With the passing of Reserve Bank of India Act 1934, District Central Co-op. Banks Act and Land Development Banks Act, leading to improvements in agricultural credit 3/20/2018 AGRICULTURAL FINANCE 3
Introduction- Agriculture Finance in India (2/2) Large-scale credit became available with reasonable rates of interest at easy terms, both in terms of granting loans and recovery of them Till 14 major commercial banks were nationalized in 1969, co-operative banks were the main institutional agencies providing finance to agriculture After nationalization, it was made mandatory for these banks to provide finance to agriculture as a priority sector 3/20/2018 AGRICULTURAL FINANCE 4
What is Agricultural Finance? “Agricultural finance is the study of financing and liquidity services credit provides to farm borrowers. It is also considered as the study of those financial intermediaries who provide loan funds to agriculture and the financial markets in which these intermediaries obtain their loanable funds” DEFINITION Murray (1953) defined agricultural finance as “an economic study of borrowing funds by farmers, the organization and operation of farm lending agencies and of society's interest in credit for agriculture.” 3/20/2018 AGRICULTURAL FINANCE 5
3/20/2018 AGRICULTURAL FINANCE 6 Finance/Credit Time Purpose SecurityLender’s Borrower’s Classification of Finance
Based on Time Short–term loans: • These loans are to be repaid within a period of 6 to 18 months • All crop loans are said to be short–term loans, but the length of the repayment period varies according to the duration of crop • This type of loan is required to meet expenses like sowing, fertilizer application, plant protection measures, payment of wages to casual laborers' etc. Medium – term loans: • Here the repayment period varies from 18 months to 5 years • These loans are required for purchasing implements, electric motors, milch cattle, sheep and goat, etc. Long – term loans: • These loans fall due for repayment over a long time ranging from 5 years to more than 20 years • These loans are meant for permanent improvements like levelling and reclamation of land, construction of farm buildings, purchase of tractors, raising of orchards ,etc. 3/20/2018 AGRICULTURAL FINANCE 7
Based on Purpose Production loans: • These loans refer to the credit given to the farmers for crop production • They are also called as seasonal agricultural operations (SAO) loans or short – term loans or crop loans  Investment loans: • These are loans given for purchase of equipment the productivity of which is distributed over more than one year • Loans given for tractors, pump sets, tube wells, etc. Marketing loans: • These loans are meant to help the farmers in overcoming the distress sales and to market the produce in a better way. • Regulated markets and commercial banks, based on the warehouse receipt are lending in the form of marketing loans by advancing 75 per cent of the value of the produce Consumption loans: • Any loan advanced for some purpose other than production is broadly categorized as consumption loan 3/20/2018 AGRICULTURAL FINANCE 8
Based on security(1/2) Secured loans: Loans advanced against some security by the borrower are termed as secured loans I. Personal security: • Under this, borrower himself stands as the guarantor • Loan is advanced on the farmer’s promissory note • Third party guarantee may or may not be insisted upon (i.e. based on the understanding between the lender and the borrower) II. Collateral Security: • Here the property is pledged to secure a loan • The movable properties of the individuals like LIC bonds, fixed deposit bonds, warehouse receipts, machinery, livestock etc. are offered as security 3/20/2018 AGRICULTURAL FINANCE 9
Based on security(2/2) III. Mortgage: • As against to collateral security, immovable properties are presented for security purpose • For example, land, farm buildings, etc. • The person who is creating the charge of mortgage is called mortgagor (borrower) and the person in whose favor it is created is known as the mortgagee (banker) Unsecured loans: • Just based on the confidence between the borrower and lender, the loan transactions take place • No security is kept against the loan amount 3/20/2018 AGRICULTURAL FINANCE 10
Lender’s Classification Institutional credit: • Here are loans are advanced by the institutional agencies like co-operatives, commercial banks • Ex: Co-operative loans and commercial bank loans Non-institutional credit : • Here the individual persons will lend the loans • Ex: Loans given by professional and agricultural money lenders, traders, commission agents, relatives, Friends, etc. 3/20/2018 AGRICULTURAL FINANCE 11
Borrower’s Classification Based on the business activity like farmers, dairy farmers, poultry farmers, pisciculture Farmer, rural artisans etc. Based on size of the farm: agricultural laborers, marginal farmers, small farmers , medium farmers , large farmers Based on location hill farmers (or) tribal farmers 3/20/2018 AGRICULTURAL FINANCE 12
Sources of Agricultural Finance 3/20/2018 AGRICULTURAL FINANCE 13
Institutional Credit Agencies(1/8) Co-operative Societies: Primary Agricultural Credit Societies (PACs): • These are organized at the village level • These societies generally advance loans only for productive purposes • The main objective of a PACS is to raise capital for the purpose of giving loans • And supporting the essential activities such as supply of agricultural inputs at cheap price, improving irrigation on land owned by members, encourage various income-augmenting activities such as horticulture, animal husbandry, poultry etc. 3/20/2018 AGRICULTURAL FINANCE 14
Institutional Credit Agencies(2/8) District Central Cooperative Banks: • These cooperatives are organized at the district level • The PACS are affiliated to the District Central Co-operative Banks (DCCBs) • DCCBs coordinate the activities of district central financing agencies, organize credit for PACs and carry out banking business State Co-Operative Banks: • The DCCBs are affiliated to State Co-operative Banks (SCBs), which coordinate the activities of DCCBs, • It organize provision of finance for credit worthy farmers, carry out banking business and act as leader of the Co-operatives in the States 3/20/2018 AGRICULTURAL FINANCE 15
Institutional Credit Agencies(3/8) Commercial Banks: • Commercial banks are providing finance both directly and indirectly • Direct finance is for agricultural operation for short and medium periods • Indirect finance refers to advance for distribution of fertilization and other inputs 3/20/2018 AGRICULTURAL FINANCE 16
Institutional Credit Agencies(4/8) Land Development Banks • Land Development Banks were set up in order provide for long term finance • Previously they were called Land Mortgage Banks; the objective of the bank is to provide long term credit to cultivators against the mortgage of their lands These banks provide loans for :- • Repayment of old loans to cultivators • Purchasing new land • Digging, construction and repairing of the well 3/20/2018 17
Institutional Credit Agencies(5/8) Regional Rural Banks • The Regional Rural Banks were set up in 1975 on the recommendations of M. Narsimha committee • The main objective of the RRBS is to provide credit and other facilities particularly to the small and marginal farmers, agricultural laborers, artisans and small entrepreneurs so as to develop agriculture, trade commerce, industry and other productive activities in the rural areas 3/20/2018 AGRICULTURAL FINANCE 18
Institutional Credit Agencies(6/8) The Government Loan Schemes • These are both short term as well as long-term loans schemes • The loans are popularly known as “Taccavi loans” which are generally advanced in times of natural calamities • The rate of interest is low. But it is not a major source of agricultural finance 3/20/2018 AGRICULTURAL FINANCE 19
Institutional Credit Agencies(7/8) NABARD • NABARD was set up as the government needed an Apex institution to extend support and give guidance to credit institutions • NABARD was set up in July 1982 and it took over the functions of ARDC and also the functions of the RBI in relation to co-operative banks and RRBs • The main objective of the NABARD is to look after agricultural credit • It also has to provide refinance facilities to all banks and financial institution landing to agricultural and rural development 3/20/2018 AGRICULTURAL FINANCE 20
Contribution of NABARD to Agricultural finance Refinance to state government & co-op. banks Development of Rural Infrastructure Development Fund Promotion of Micro-finance Bulk Lending Support to NGOs Tribal Development Project in Gujarat (wadi project) Kisan Credit Card Scheme Gender Development through Credit: Assistance to Rural Women in Non- Farm Activities (ARWIND) Refinance under Swarnajayanti Gram Swarojgar Yojna Supervising body Farm Income Insurance Scheme ( FIIS) 2003-04 Differential Rate of Interest (DRI) 1972 3/20/2018 AGRICULTURAL FINANCE 21
Institutional Credit Agencies(8/8) Micro-Financing: • Micro-financing through Self Help Groups • SHG is a group of rural poor who volunteer to organize themselves into a group for eradication of poverty of the members. They agree to save regularly and convert their savings into a common fund known as the Group corpus • As soon as the SHG is formed and a couple of group meetings are held, an SHG can open a Savings Bank account with the nearest Commercial or Regional Rural Bank or a Cooperative Bank 3/20/2018 AGRICULTURAL FINANCE 22
Agency-wise Credit Flow to Agriculture in India (2005-2006 to 2016-2017) (Rs. in Crore) Year Cooperative Regional Rural Commercial Other Agencies Total Banks Banks Banks* 2005-2006 39403 15223 125477 382 180485 2006-2007 42480 20435 166485 - 229400 2007-2008 48258 25312 181088 - 254658 2008-2009 45966 26765 228951 226 301908 2009-2010 63497 35217 285800 - 384514 2010-2011 78121 44293 345877 - 468291 2011-2012 87963 54450 368616 - 511029 2012-2013 111203 63681 432491 - 607375 2013-2014 119964 82652 509005 - 711621 2014-2015 (P) 138469 102483 599691 - 840643 2015-2016 (P) 153300 119300 643000 - 915500 2016-2017 (P) 142800 123200 799800 - 1065800 3/20/2018 AGRICULTURAL FINANCE 23 Source : The Fertilizer Association of India. (15215) & (16851) & Reserve Bank of India. (ON1532) & India Stat
Share of Institutional credit agencies 3/20/2018 24 3.61 25.37 71.02 Share of Formal sources % Government Co-operative society Banks Source: Authors’calculations based on unit level data from Situation Assessment Survey of Agricultural Households, 2013. National Sample Survey Office (NSSO), Government of India
3/20/2018 25 0 200000 400000 600000 800000 1000000 1200000 Agency-wise credit Flow to Agriculture in India Cooperative Banks Regional Rural Banks Commercial Banks* Other Agencies Total Linear (Cooperative Banks) Linear (Regional Rural Banks) Linear (Commercial Banks*) Linear (Total) Source : The Fertilizer Association of India. (15215) & (16851) & Reserve Bank of India. (ON1532) & India Stat
Non-Institutional Credit Agencies Traders and Commission Agents: • Advances loans for productive purposes against crop without legal formalities • Becomes obligatory for farmers to buy inputs and sell outputs through them • They charge a hefty rate of interest on the loan and a commission on all sales and purchases Landlords: • Mostly small farmers and tenants depend on landlords for meeting their production and day to day financial requirements Money lenders: • Money lenders are of two types, agriculturist money lenders who combine their money lending jobs with farming and professional money lenders whose sole job is money lending 3/20/2018 AGRICULTURAL FINANCE 26
Share of Non-Institutional credit agencies Source: Authors’calculations based on unit level data from Situation Assessment Survey of Agricultural Households, 2013. National Sample Survey Office (NSSO), Government of India 3/20/2018 27 3.61 25.37 71.02 Share on Informal sources (%) Government Co-operative society Banks
Share Of Formal and Informal sources of total loans 3/20/2018 28 63.56 36.44 0 10 20 30 40 50 60 70 Formal sources In-Formal sources Share of formal and Informal sources Source: Authors’calculations based on unit level data from Situation Assessment Survey of Agricultural Households, 2013. National Sample Survey Office (NSSO), Government of India
Weaknesses in Rural Credit Structure Multiplicity of Institutions Lack of Motivation High Interest Rates Procedural Delays Poor recoveries 3/20/2018 AGRICULTURAL FINANCE 29
Suggestions for Improving Institutional Rural Credit System Financial Discipline to Improve Recovery Revamping the Cooperative Credit Structure Better Physical, Social and Economic Infrastructure Financial cum Consultancy Approach Autonomy to RRBs Greater involvement of Micro Finance Organizations Technological Up Gradation Information Dissemination to Rural Poor 3/20/2018 AGRICULTURAL FINANCE 30
References(1/2) 3/20/2018 AGRICULTURAL FINANCE 31  Agriculture Finance in India. (n.d.). Retrieved February 11, 2018, from https://www.scribd.com/doc/19494126/Agriculture-Finance-in-India  AGRICULTURE FINANCE IN INDIA - PUNE RESEARCH. (n.d.). Retrieved February 11, 2018, from http://puneresearch.com/media/data/issues/598356ba72d02.pdf  CHAPTER III AGRICULTURAL FINANCE AN OVERVIEW 3.1. INTRODUCTION. (n.d.). Retrieved February 11, 2018, from http://shodhganga.inflibnet.ac.in/bitstream/10603/15715/9/09_chapter%203.pdf  Notes on Agricultural Finance and Marketing. (2015, August 12). Retrieved February 11, 2018, from http://www.economicsdiscussion.net/notes/notes-on-agricultural-finance-and-marketing/2106
References(2/2)  Subba Reddy, S. and P. Raghuram., Agricultural Finance and Management, Oxford & IBH Publishing Company Private Ltd., New Delhi, 2005  (n.d.). Retrieved February 11, 2018, from https://www.indiastat.com/agriculture/2/agriculturalinstitutionalfinance/39/stats.aspx  Agricultural finance in India. (n.d.). Retrieved February 11, 2018, from https://books.google.com/books/about/Agricultural_finance_in_India.html?id=yPsJAQAAMAAJ  Agriculture Finance - KESDEE. (n.d.). Retrieved February 11, 2018, from http://www.kesdee.com/agriculturefinance/agriculture_finance_in_india.html 3/20/2018 32
Agricultural finance
Agricultural finance