Agricultural credit is an important input for agricultural development programs in India. It is needed to purchase seeds, fertilizers, equipment and manage risks. However, small and marginal farmers often do not receive enough institutional credit. Some reasons for this are loose definitions that allow large companies access to subsidized loans, and non-compliance by banks with targets for lending to small farmers. Reforms are needed to streamline the system and better facilitate credit to small farmers through organizations and technology.

1. Agriculture Credit
Vaibhav

2. Meaning of Credit
•The word “credit” comes from the Latin word
“Credo” which means “I believe”. Hence credit
is based upon belief, confidence, trust and
faith. Credit is otherwise called as loan.
•Credit/loan is certain amount of money
provided for certain purpose on certain
conditions with some interest, which can be
repaid sooner (or) later.

3. Agriculture Credit
• Agricultural credit is considered as one of the most basic inputs for
conducting all agricultural development programmes. In India,
there is an immense need for proper agricultural credit as Indian
farmers are very poor. From the very beginning, the prime source
of agricultural credit in India was money lenders.
• After independence, the Government adopted the institutional
credit approach through various agencies like co-operatives,
commercial banks, regional rural banks etc. to provide adequate
credit to farmers, at a cheaper rate of interest. Moreover, with
growing modernization of agriculture during the post-green
revolution period, the requirement of agricultural credit has
increased further in recent years.

4. What is Rural Credit?
•Agriculture is the primary source of income of
individuals residing in the rural regions across India.
Every year, farmers and peasants need to invest a
considerable amount of funds to ensure a healthy
harvest. Thus, they often resort to borrowing money
from moneylenders and financial institutions to full
their basic needs before harvest season arrives, and
they can earn money by selling their crops.
•Thus, any loan taken for agricultural purposes or small
home businesses across the rural areas in India is
known as a rural credit.

5. Difference between Agricultural Finance and Rural Credit
There is a difference between agricultural credit and
rural credit. Agricultural credit is linked with the growth
of agriculture; whereas rural finance covers all the
aspects of socio-economic life of rural area. It covers a
wide variety of farm and non-farm productive activities
such as agriculture, animal husbandry, fisheries forestry,
small agro-based industries as well as development of
physical and social infrastructure in the form of
transport and communication, water and power
education and health etc.

6. Need for Agricultural Credit:
Credit is required in every type of business and agriculture is not
exception to it. The need for agricultural credit however becomes all
the more impotent when it moves from traditional agriculture to
modern agriculture. The agricultural sector at present is beset with a
number of handicaps. The land holding is very small. The population is
growing at a fast rate. Agricultural labouris often underemployed.
Production suffers from weather risks. The capacity of the farmers to
save and invest is very low. The agricultural productivity is low due to
low use of in-puts. The farmers, therefore, need credit to increase
productivity and efficiency in agriculture. This need is increasing over
the years with the rise in use of fertilizers, mechanization and rise in
prices. Briefly the need for agricultural credit can be summed up as
under.

7. The following points reveals the need for agricultural credit
• 1.Purchase of new inputs:
• 2.Purchase of Implements:
• 3.Better Management of Risk:
• 4.Permanent Improvement in Land:.
• 5.Better marketing of Products
• 6.To Face Crisis
• 7.Purchase of Cattle
• 8.Payment of ancestor’s Debt
• 9.Consumption Expenditures
• 10.Civil and Criminal Suits

8. Types of agricultural / rural credit
Considering the period and purpose of the credit requirement of the
farmers of the country, agricultural credit in India can be classified into
three major types
• Short term credit: The Indian farmers require credit to meet their short term
needs viz., purchasing seeds, fertilizers, paying wages to hired workers etc. for a
period of less than 15 months. Such loans are generally repaid after harvest.
• Medium-term credit: This type of credit includes credit requirement of farmers
for a medium period ranging between 15 months and 5 years and it is required for
purchasing cattle, pumping sets, other agricultural implements etc. Medium-term
credits are normally larger in size than short term credit.
• Long term credit: Farmers also require finance for a long period of more than 5
years just for the purpose of buying additional land or for making any permanent
improvement on land like the sinking of wells, reclamation of land, horticulture
etc. Thus, the long term credit requires sufficient time for the repayment of such
loan.

9. Sources of Agricultural Credit
•Credit in the farm sector is available
from two sources
•1.Non-Institutional Sources
•2.Institutional Sources

10. 1 . Non-institutional Sources of Rural Credit:
The major non-institutional sources of farm credit are
1.Money lenders
2.Friends
3.Relatives
4.Landlords
5.Shopkeepers
6.Commission agents
The Money Lenders, were the main suppliers of loans to the farmers. However,
their importance has decreased to a great extent now and the short-term credit
needs of the farmers are met from commission agents, friends and relatives.
The commission agents advance loans to the farmers for short-period. They
force the farmers to sell the produce to them which generally is purchased at
low rates.

11. The lenders of the informal sources (friends, relatives
etc) have certain advantages over the formal credit
sources.
•The informal lenders usually know the borrowers
personally.
•They require little security for advancing loans
•The loans are provided for consumption as well as
production purposes.
•The lenders are approachable at all times.
•They are also lenient in rescheduling loans.

12. 2.Institutional Sources (Rural Credit)
•1. Land Development Bank
•2. Co-operative Credit Societies
•3. Regional Rural Banks
•4. Commercial Banks
•5. Government

13. Sources of agriculture credit
•Apart from the moneylenders, cooperative credit
sources and the government, nowadays, the long term
and short term credit needs of institutions are also
being met by National Bank for Agricultural and Rural
Development (NABARD).
•Sources of agricultural credit can be broadly classified
into institutional and non-institutional sources. Non-
Institutional sources include moneylenders, traders and
commission agents, relatives and landlords, but
institutional sources include co-operatives, commercial
banks including the SBI Group, RBI and NABARD.

14. Commercial banks
• In the initial period, the commercial banks of our country have
played a marginal role in advancing rural credit. With the help of
“village adoption scheme” and service area approach the
commercial banks started to meet the credit and other
requirements of the farmers. They also sponsored various regional
rural banks for extending credit to small and marginal farmers and
rural artisans just to save them from the clutches of village
moneylenders.
• Commercial banks are finding difficulty in advancing loans to the
farmers particularly in respect of lending techniques, security,
recovery etc. and are expected to overcome these gradually. But
the commercial banks are not very much interested to advance
loan to small and marginal farmers.

15. Government:
Another important source of agricultural credit is the
Government of our country. These loans are known as
taccavi loans and are lend by the Government during
emergency or distress like famine, flood etc. The rate
of interest charged against such loan is as low as 6 per
cent. During 1990-91, the state Governments had
advanced nearly Rs 350 crore as a short-term loan to
agriculture. But the taccavi loan failed to become very
much popular due to official red-tapism and
corruption.

16. Credit facility to farmers:
• Kissan credit card: The Kissan Credit Card (KCC) scheme was launched in 1998 with
the aim of providing short-term formal credit to farmers. Owner cultivators, as well
as tenant farmers, can avail loans to meet their agricultural needs under this scheme
at attractive rates of interest. The government has also simplified the application
process to increase interest among farmers. Repayment is also simplified and
dependent on the harvesting season, reducing the farmers’ debt burden.
• Investment loan: Loan facility to the farmers is available for investment purposes in
the areas viz. Irrigation, Agricultural Mechanization, Land Development, Plantation,
Horticulture and Post-Harvest Management.
• Interest subvention scheme: The interest subvention scheme for farmers aims at
providing short term credit to farmers at the subsidised interest rate. The policy
came into force with effect from Kharif 2006-07. The scheme is being implemented
for the year 2018-19 and 2019-20.
• The interest subvention will be given to Public Sector Banks (PSBs), Private Sector
Banks, Cooperative Banks and Regional Rural Banks (RRBs) on use of own funds and
to NABARD for refinancing to RRBs and Cooperative Banks.
• The Interest Subvention Scheme is being implemented by NABARD and RBI.

17. Impact of credit on agriculture
•Providing credit to small farmers at a reasonable rate has been
the agenda of the Centre, the States, and the Reserve Bank of
India (RBI) for decades.
•However, the volume of credit has improved over the decades,
its quality and impact on agriculture have only deteriorated.
•In 2011-12, the target was ₹4.75-lakh crore; now, agri-credit
has reached the target of ₹15-lakh crore in 2020-21 with an
allocated subsidy of ₹21,175 crores.
•Agricultural credit has become less efficient in delivering
agricultural growth.

18. Issues with agri-credit: small farmers left-out
• In the last 10 years, agriculture credit increased by 500% but has not reached even
20% of the 12.56 crore small and marginal farmers.
• 95% of tractors and other agri-implements sold in the country are being financed
by non-banking financial companies, or NBFCs, at an 18% rate of interest.
• The RBI has also questioned agricultural households with up to two hectares getting
only about 15% of the subsidized outstanding loan from institutional sources
(bank, co-operative society).
• As per the Agriculture Census, 2015-16, the total number of small and marginal
farmers’ households in the country stood at 12.56 crore which makes up 86.1% of
the total holdings.
• As in the Situation Assessment Survey of Agricultural Households by the National
Sample Survey Office (NSSO), the share of institutional loans rises with an increase
in land possessed.
• This shows that the bulk of subsidized agri-credit is grabbed by big farmers and agri-
business companies.

19. What are the reasons
• A loose definition of agri-credit has led to the leakage of loans at subsidized
rates to large companies in agri-business.
• The RBI had set a cap that out of a bank’s overall adjusted net bank credit, 18%
must go to the agriculture sector, and within this, 8% must go to small and
marginal farmers and 4.5% for indirect loans, bank advances routinely breach
the limit.
• A review by the RBI’s internal working group in 2019 found that in some
States, credit disbursal to the farm sector was higher than their agriculture
gross domestic product (GDP) and the ratio of crop loans disbursed to input
requirement was very unevenly distributed.
• This shows the diversion of credit for non-agriculture purposes.
• One reason for this diversion is that subsidized credit disbursed at a 4%-7% rate
of interest is being refinanced to small farmers, and in the open market at a rate
of interest of up to 36%.

20. Problems regarding Agricultural credit in India
• Insufficiency: In spite of the expansion of rural credit structure, the volume of rural credit in
the country is still insufficient as compared to its growing requirement arising out of the
increase in prices of agricultural inputs.
• Inadequate amount of sanction: The amount of loan sanctioned to the farmers by the
agencies is also very much inadequate for meeting their different aspects of agricultural
operations. Considering the amount of loan sanctioned as inadequate and insignificant, the
farmers often divert such loan for unproductive purposes and thereby dilute the very
purpose of such loan.
• Lesser attention of poor farmers: Rural credit agencies and its schemes have failed to meet
the needs of the small and marginal farmers. Thus, lesser attention has been given on the
credit needs of the needy farmers whereas the comparatively well-to-do farmers are getting
more attention from the credit agencies for their better creditworthiness.
• Inadequate institutional coverage: In India, the institutional credit arrangement continues to
be inadequate as compared to its growing needs. The development of co-operative credit
institutions like Primary agricultural credit societies, land development banks, commercial
banks and regional rural banks, have failed to cover the entire rural farmers of the country.
• Red tapism: Institutional agricultural-credit is subjected to red-tapism. Credit institutions are
still adopting cumbersome rules and formalities for advancing loan to farmers which
ultimately force the farmers to depend more on costly non-institutional sources of credit.

21. Solutions
• To monitor the taccavi loan offered by the Government in a serious manner.
• Co-operative credit societies should be organised to make it efficient and purposeful for
delivering the best in terms of rural credit. Moreover, these societies may be transformed into
a multi-purpose society with sufficient funding capacity.
• Middlemen existing between credit agencies and borrowers should be eliminated.
• Reserve Bank of India should arrange sufficient fund so that long term loans can be advanced
to the farmers.
• Power and activities of the Mahajans and moneylenders should be checked so as to declare an
end to the exploitation of farmers.
• The banks should adopt procedural simplification for credit delivery through rationalisation of
its working pattern.
• In order to check the fraud practices adopted by the farmer, for getting loans from different
agencies by showing same tangible security, a credit card should be issued against each farmer
which will show the details about the loans taken by them from different agencies.
• Credit should also monitor the actual utilisation of loans by developing an effective supervisory
mechanism.

22. • The way forward is to empower small and marginal farmers by ‘giving
them direct income support on a per hectare basis rather than hugely
subsidizing credit.
• Streamlining the agri-credit system to facilitate higher crop loans to
farmer producer organizations, or the FPOs of small farmers against
commodity stocks can be a win-win model to spur agriculture growth’.
• With mobile phone penetration among agricultural households in
India being as high as 89.1%, efforts to improve institutional credit
delivery through technology-driven solutions can reduce the extent of
the financial exclusion of agricultural households
• There is a need to reforming the land leasing framework and creating
a national-level agency to build consensus among States and the
Centre concerning agriculture credit reforms.