In India, agriculture forms the backbone of the economy and supports a large percentage of the population, many of whom are small and marginal farmers. Access to credit is vital for these farmers to purchase seeds, fertilisers, equipment, and other necessities to sustain and improve agricultural productivity. However, a major hurdle for many farmers has been the insistence of banks on credit scores such as the CIBIL score, which serves as a measure of creditworthiness.
Fortunately, Indian banks, under regulatory and government directives, are increasingly supporting farmers by providing agriculture loans without mandating CIBIL scores, thus making credit easily accessible for them.
The CIBIL score is widely used by financial institutions to assess a borrower’s likelihood to repay a loan. Despite its importance in general lending, the use of CIBIL scores for agriculture loans has been a contentious issue. Many farmers, especially small and marginal ones, either do not have a CIBIL score or have low scores due to various reasons such as lack of formal credit history. Requiring a good CIBIL score for agriculture loans often results in credit denial to deserving farmers.
Recognising this challenge, regulatory authorities like the Reserve Bank of India (RBI) have issued directives stating that banks should not insist on CIBIL scores while disbursing agriculture loans. For instance, Maharashtra’s Chief Minister Devendra Fadnavis warned banks not to deny farm loans based on CIBIL scores. He emphasised that failing to provide loans to farmers could have adverse consequences on the economy and could be linked to farmer distress and suicides. Banks found insisting on CIBIL scores for loans to farmers face strict action, including FIRs and penalties.
Banks support farmers by assessing loan eligibility based on alternative criteria that better fit agricultural realities. These include factors such as land ownership or leasehold rights, historical loan repayment records in cooperative or regional rural banks, group lending models like Joint Liability Groups (JLGs) and Self-Help Groups (SHGs), and the cash flow generated from agriculture activities.
Some banks have designed specific agricultural loan products designed to provide hassle-free credit to farmers regardless of their CIBIL score. For example, Bank of Maharashtra offers the Kisan All Purpose Term Loan which can be availed by individual farmers or groups and does not focus solely on credit scores. The loans come with flexible repayment schedules aligned to farmers’ income cycles.
The government’s credit plans have significantly ramped up allocations to the agriculture sector with yearly targets in the tens of lakh crore rupees range. These plans prioritise credit coverage to farmers, particularly smallholders, without making CIBIL scores a precondition. Such inclusive credit targeting improves farmers’ access to timely, affordable working capital.
Schemes such as the Kisan Credit Card (KCC) and micro loans have further enhanced loan accessibility by offering collateral-free or low-collateral credit options tailored to the specific needs of farmers. These initiatives often involve simplified processes, limited paperwork, and no stipulation for minimum credit scores, thereby welcoming farmers without a formal credit history.
Banks also provide loans for allied agricultural activities like irrigation infrastructure, farm machinery purchases, cold storage units, and solar-based pumping systems. These loans typically involve eased credit norms for priority lending and aim to increase farm productivity and income.
Using CIBIL scores for agriculture loans has inherent limitations. Many farmers operate outside organised financial systems, have seasonal income patterns, and lack formal credit histories, which skews their credit scores. Denying them loans solely based on CIBIL scores exacerbates rural credit exclusion and farmer distress.
Providing loans without demanding CIBIL scores allows banks to reach the genuinely creditworthy farmers who depend heavily on timely funds for sowing, harvesting, and other seasonal activities. This leads to better agricultural outcomes, rural development, and strengthened food security.
Moreover, easing credit access through loans without credit score restrictions contributes positively to the rural economy by empowering farmers to invest in modern methods, improve yields, and increase their incomes. It also helps banks meet their priority sector lending targets mandated by the RBI.
While it is true that credit scores play an important role in most loan decisions, the RBI clarifies there is no mandatory requirement to use CIBIL or any credit score for extending agriculture credit. In many cases, banks rely on a holistic assessment rather than just scores.
A good CIBIL score may be advantageous for farmers who have prior credit experience, making loan approvals quicker and possibly at better rates. However, it remains only one among several factors considered.
Farmers and agricultural borrowers should be aware that they are entitled to loans without the hindrance of credit score requirements, as mandated by banking regulators and state governments. Misuse of credit score insistence by banks is subject to penalties and regulatory scrutiny.
Banks are playing a critical and evolving role in supporting India’s farmers by providing agriculture loans without mandatory CIBIL score requirements. Thanks to clear regulatory guidelines and state government directives, financial institutions are increasingly adopting farmer-friendly credit practices. This approach enhances credit accessibility for millions of farmers who otherwise face barriers due to lack of formal credit history.
Loans without CIBIL score prerequisites enable farmers to invest in their agricultural activities effectively, resulting in higher productivity and rural prosperity. With continued focus on inclusive lending, transparent processes, and targeted government schemes, the agricultural credit ecosystem in India is becoming more equitable and farmer-centric.