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The agriculture sector in India is one of the biggest employers of labour force and grew at 3.9 per cent in 2021-22. With such a large percentage of the population employed in agriculture or allied sectors, agricultural finance plays a significant role in supporting activities related to farming and other allied aspects such as production or processing and marketing of produce.

The sources of agricultural finance in the country are broadly classified as institutional and non-institutional sources. Institutional sources are related to institutions such as cooperatives, regional rural banks (RRBs) or scheduled commercial banks (SCBs). Non-institutional agricultural finance refers to financing support offered by traders, money lenders or other individuals like agents, landlords or even family members. 

Institutional Sources of Agricultural Finance in India

  • Co-operative societies

Co-operative societies offer the least expensive loans for agriculture and related activities. Primary Agricultural Co-operative Societies (PACS) are among the oldest forms of agri finance in India and provide short and medium-term loans for agricultural activities. Long-term loans are provided by Primary Co-operative Agriculture and Rural Development Banks (PCARDBs). State Co-operative Agriculture and Rural Development Banks (SCARDBs) also offer long-term loans.

  • Land Development Banks

Among the various sources of agricultural finance in India are land development banks. Also called land mortgage banks, they are registered under the Co-operative Societies Act. In some states, they are known as Agricultural and Rural Development Banks (ARDBs). These banks offer long-term loans with land as collateral.

  • Commercial Banks

While co-operative societies offer credit to farmers in need of finance, commercial banks also offer credit to farmers in need of financial support. Scheduled commercial banks offer loans to farmers for buying farm equipment and costs related to activities after harvest. Loans are also offered for dairy and fisheries. Banks offer Kisan Credit Cards, which can be used for the withdrawal of cash at an ATM. The Kisan Credit Card scheme was introduced in 1998 in order to enable credit easily for farmers.

  • Regional Rural Banks

One of the essential sources of farm finance is regional rural banks, which are scheduled commercial banks owned by the government. They were set up based on the recommendations of the Narasimhan Working Group in 1975, followed by the Regional Rural Banks Act, 1976.

  • Micro Finance

Micro finance is another option that farmers who don’t have access to credit via banks and financial institutions or those who don’t have adequate collateral can fall back on. Micro finance involves small loans with no collateral and is provided by Microfinance Institutions (MFIs).

  • Non-Banking Financial Companies

Apart from all these various sources of agricultural finance in India, there is one more significant source – the NBFC. Backed by online and easy-to-use app-based platforms, an NBFC takes banking and credit to those farmers not touched by mainstream banking.

Role of NABARD

Among the sources of farm finance to banks and institutions in India is the National Bank for Agriculture and Rural Development (NABARD). NABARD offers refinance to regional rural banks, state co-operative banks, district central co-operative banks and state governments as well.

Non-institutional Sources of Agricultural Finance in India

Moneylenders, family and friends, traders, landlords or commission agents are non-institutional sources of agricultural finance.

  • Moneylenders, Agents, Traders and Landlords

Moneylenders have for decades served as the source for many agricultural families in India’s rural credit landscape. However, the interest rates are high and moneylenders have in many instances pushed families into a debt trap. The same applies to landlords who also charge high and unsustainable rates of interest. Commission agents or traders also offer finance to farmers but interest rates are relatively high when compared to institutional sources of farm finance.

An easy alternative is to look for small business loans, available on Bajaj MARKETS, at convenient interest rates. What’s more, the loan can be availed online in a hassle-free manner.

  • Relatives and Friends

Although relatives can prove to be of help, they may help us in case of financial emergencies and not frequently.

Agriculture is a crucial sector of the country’s economy and contributes to employment and the nation’s GDP. The importance of farm credit and financing is vital for adopting the best agricultural practices and boosting production. Although non-institutional sources of farm income have been available for decades now, interest rates are high and there is a lack of proper documentation. Customised loan products, made available by NBFCs empowered by technology, have ensured that farmers now have access to institutional credit.

Agriculturists can now opt for loans made available by commercial banks, rural banks, land development banks, microfinance institutions or NBFCs to avail loans. Business loans, available on Bajaj MARKETS from various partners, come with affordable rates of interest and zero collateral. These loans are available at the click of a button and come with flexible repayment options.