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Explore institutional and non-institutional sources of agricultural finance in India that provide easy access to credit for agricultural activities.
The agriculture sector in India is one of the biggest employers of the labour force. With such a large percentage of the population employed in this sector, agriculture finance plays a significant role.
It provides funding for various activities related to agriculture, including soil cultivation, production, storage, and marketing of products. In India, agricultural finance comes from two main sources: institutional and non-institutional.
Institutional sources include organisations such as cooperatives, Regional Rural Banks (RRBs), and Scheduled Commercial Banks (SCBs). Non-institutional agricultural finance refers to funding support from traders, moneylenders, and individuals like agents, landlords, or even family members.
They provide access to credit at affordable interest rates but require higher compliance. Here are some of the institutional sources of agricultural finance in India:
Cooperative Societies
Cooperative societies offer affordable loans for agriculture and related activities. Primary Agricultural Cooperative Societies (PACS) are among the oldest forms of agri finance in India. They provide short and medium-term loans for agricultural activities.
Primary Cooperative Agriculture and Rural Development Banks (PCARDBs) provide long-term loans. State Cooperative Agriculture and Rural Development Banks (SCARDBs) also offer long-term loans.
Land Development Banks(LDBs)
Among the various sources of agricultural finance in India are Land Development Banks. They are registered under the Cooperative Societies Act. Land development banks provide farmers with long-term cooperative credit ranging from 15 to 20 years.
These loans are secured against lands. You can use them to purchase agricultural equipment, make permanent land improvement, and repay debts.
Commercial Banks
While cooperative societies offer credit to farmers in need of finance, commercial banks also do the same. Scheduled commercial banks provide loans to farmers for buying farm equipment and costs related to activities after harvest.
They also extend loans for dairy and fisheries. Banks offer Kisan Credit Cards, which you can use to withdraw cash at an ATM. The Kisan Credit Card scheme (KCC) was introduced in 1998 in order to enable credit easily for farmers.
Regional Rural Banks
One of the essential sources of farm finance are Regional Rural Banks (RRBs). These are scheduled commercial banks owned by the government. They were set up under the provisions of the ordinance in 1975, followed by the Regional Rural Banks Act of 1976.These banks are commercial banks in India that offer banking services to rural and semi-urban areas.
Micro Finance
This is another option for farmers who need credit via banks and financial institutions. It is ideal for those without adequate collateral to fall back on. Microfinance Institutions (MFIs) provide small loans without collateral.
Non-Banking Financial Companies (NBFCs)
With easy-to-use online platforms, NBFCs provide access to banking and credit to farmers who do not have access to mainstream banking
Moneylenders, family and friends, traders, and landlords are some of the non-institutional sources. Here is more about them:
Moneylenders, Agents, Traders and Landlords
Moneylenders have served as the source of finance 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 charge high and unsustainable interest rates. Commission agents and traders also offer loans but charge higher interest rates than institutional sources.
Relatives and Friends
Although relatives and friends can be of help, they may be more helpful in addressing financial emergencies. Planning proper repayment and deciding on interest, if any, may be a challenge.
If you are planning to get agricultural financing, here are some challenges that you may face:
High Interest Rates
The interest rates associated with agricultural loans can be on the higher side. This is usually due to the absence of collateral, credit history, and other factors. This can make repayment difficult for small farmers, putting additional financial strain on them.
Lack of Awareness
In India, many farmers are unaware of the resources and government schemes they can access for agricultural activities. Due to this gap, they miss the opportunities to benefit from these resources.
Collateral Requirements
Financial institutions, including banks, often require you to pledge collateral for agricultural loans. Getting credit becomes difficult for small farmers since many do not have adequate assets to pledge.
Limited Credit History
Financial institutions assess creditworthiness by checking credit history before approving loan requests. Small farmers often lack a credit history. This complicates the process for financial institutions to evaluate their ability to repay loans.
India remains a nation where agriculture is the backbone of its economy. Success often hinges on a critical factor for these cultivators: access to financial resources. Here are the major impacts of agricultural financing and lending in India:
Risk Management
Crop insurance schemes that financial institutions and the government offer have helped reduce the risks that come with agricultural activities. With better risk management, farmers do not need to worry about any financial strain.
Enhanced Access to Credit
With specialised loans for agriculture and awareness of other ways to get credit, farmers can easily get loans. Accessible and affordable financing allows them to boost productivity.
Job Creation
Agriculture is a major source of employment in many small towns and cities across India. With access to agricultural loans, farmers can expand their productivity and operations, which in turn helps create additional employment opportunities within the sector.
Infrastructure Development
Agricultural lending and financing also help improve rural infrastructure. This includes constructing and improving roads, irrigation systems, and storage facilities.
Agriculture is key to India’s economy, providing jobs and contributing to GDP. High interest rates and other formalities made it difficult to access credit. Agriculturists can now opt for loans made available by commercial banks, rural banks, land development banks, microfinance institutions or NBFCs to get loans.
You can look for small business loans, available on Bajaj Markets, at convenient interest rates. These loans are available at the click of a button and come with flexible repayment options.
Non-institutional sources of agricultural finance in India include:
Money lenders
Landlords
Friends and relatives
Traders and commission agents
There are two main sources of finance in agriculture:
Institutional Sources: They offer structured financial products with regulated processes and lower interest rates
You can use agricultural finance for various purposes, such as:
Purchasing seeds and fertilisers
Acquiring livestock
Investing in machinery and infrastructure
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