Agriculture contributes around 17% to the Indian Gross Domestic Product and employs about 50% of the Indian labour force. Given such numbers, it remains pivotal for the Government to enforce farmer friendly policies. The current Government has a vision of doubling farmer’s income by 2022 and rationalizing farm loans is factored as one of the essential inputs for achieving this aim. Presently, farmer’s credit sources can be divided into groups: institutional and non-institutional.
Co-Operative Credit Societies:
They are the cheapest and most valuable source of farm loans. They were set up to meet the diverse needs of the farmer and counter the menace of moneylenders. The co-operative societies have made steady progress and have succeeded to some extent in promoting financial autonomy and self-help among farmers. They even instill financial discipline among the farmers that further aids in healthy growth.
Land Development Banks
Land development banks (formerly known as land mortgage banks) provide long-term loans to farmers against the mortgage of their lands. The interest rate is low and spread over 15 to 20 years. Although these financial institutions have seen some progress in recent years, their contribution is still trivial in comparison to other credit sources. As a result, they have not been able to touch the root of the rural credit problem effectively. Most farmers in deeper pockets of villages are still not aware of the existence or the usefulness of such banks.
Commercial banks now provide both direct and indirect finance to agriculture. Direct credit is usually offered for short and medium terms to enable farmers to carry out their day-to-day agricultural operations with no hindrance. Indirect finance is provided in the form of credits for the purchasing inputs like seeds and fertilizers. These banks also extend credit to ancillary services that provide infrastructural facilities such as storing and warehousing of agricultural produce marketing, transporting and repairing of agricultural implements.
Regional Rural Banks
In 1975, the Government set up a network of regional rural banks to look into the unique needs of small and marginal farmers, landless workers, rural artisans and the rural poor in general. The unique feature of the 196 RRBs operating since September 1990 is that they cater exclusively to the weaker sections of the rural community through nearly 14,800 branches spread over India.
Non-Banking Financial Company
NBFCs in the loaning sector are crucial in providing last-mile financial autonomy and connectivity. They aid in consolidating the financial network where the banks and other financial institutions cannot reach. Platforms like Finserv MARKETS have facilitated credit availability in rural and urban farming areas. Business loans on Finserv MARKETS come with exclusive offerings at zero collateral. You can avail loans of up to Rs. 30 lakhs with minimal documentation and a hassle-free application process. You should also read about benefits of business loan.
The Government has also provided short-term and long-term loans to farmers in times of emergency such as floods or famine. Such loans are known as Taccavi loans. These loans are offered at a concessional rate of interest (6%), and the mode of repayment is also very convenient. It can be repaid in several instalments at the time of payment of land tax.
Moneylenders, since time immemorial, have been driving a significant share of farm loans. Post-independence ( 1951-52 ), these agents were pushing around 70% of farmer’s loans. More often than not, these moneylenders indulge in malpractice and illicit behaviour like manipulation of accounts and charge an extreme rate of interest on their loans, usually 24 to 30% and over. Although today, their share has decreased, it still is significant in deeper areas where institutional credit has not reached. This obstacle is solved with the availability of such loans on Finserv MARKETS. With an online process, business loans can be availed from anywhere. Moreover, on Finserv MARKETS you can enjoy instant disbursal of the loan to your bank account, without any guarantor necessary.
Cultivators are also normally borrowing funds from their own relatives in times of their crisis both in terms of cash or kind. These loans are a kind of informal loans and carry no interest and are normally returned after harvest. These loans form Less than 1% of the total credit; however, this option can prove to be very useful during emergencies.
In India, small as well as marginal farmers and tenants are also taking a loan from the landlords for meeting their financial requirements. This source has been following all the ill-practices followed by moneylenders, traders etc. More often than not, there is witnessed a nexus between the moneylender and the landlord that forces the farmer to borrow from them at a high rate of interest. Sometimes landless workers are even forced to work as bonded labour. The non-institutional sources of farmer loans have been facing severe loopholes like exorbitant rate of interest, loan for unproductive purposes, non-repayment of loan etc.
Although a shift towards institutional credit is a positive sign, in a worrying finding, NABARD has observed that still, 30.3% of agri-households borrowed money from non-institutional sources like money lenders, relatives and input suppliers etc. Even when farmers were aware of the institutional credit, about 9% agri-households borrowed from both institutional and non-institutional sources because of other barriers. Demand for collateral security and lengthy procedure for sanction of loans by institutions were cited as the main reasons for opting non-institutional farmer loans. On Finserv MARKETS, Bajaj Finserv business loans for your farming needs come with exclusive offerings at zero collateral. Further transparency is maintained by keeping minimal documentation. You even get the benefit of fast online processing and instant disbursal of the loan in your bank account.
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