AGRICULTRE FINANCE

By: Anuj Aggarwal

Agricultural credit is of two types:-

(i) According to Purpose of Loans.

(ii) According to Time Period.

According to Purpose of Loans

 Productive Loans – purchase of seeds, diesel,

pesticides, fertilizers, modern machines etc.

 Unproductive Loans – spending on the marriage

of sister or daughter, to meet expenses related
to litigation etc.
 According to the Time Period
 Short Term credit (to be returned within 15 months)

 Medium (within 5 yrs) and long-term(within 15-20

yrs) loans are also provided directly to farmers for
financing production and development needs.

(a) Purchase of agricultural inputs and machinery.

(b) Development of irrigation facilities through
construction of tube wells, boring wells etc.
(c) Construction of farm buildings and structures like
bullock sheds, tractor sheds, watersheds etc.
Continues…..

(d) Construction and running of storage

facilities.

(e) Development of dairy farming and animal

husbandry.

(g) Financing to small and marginal farmers for

purchase of land for agricultural purposes.
Institutional Sources of Agricultural Credit

 Cooperative Credit Societies

 Commercial Banks
 Regional Rural Banks (RRB’s)
 NABARD
 Kisan Credit Card Scheme
 Micro Finance Institutions
 Credit Monitoring Arrangement
 Cooperative Development Fund
 Cooperative Credit Societies
 The rural credit cooperative structure in India is a huge
institutional infrastructure, in 2011-12, cooperatives
accounted for 17.2% of institutional credit provided to
agriculture.

 They are beset with many problems like low resource

base, high dependence on refinancing agencies,
persistent NPA’s, low recovery levels & huge
accumulated losses.

 They have government controlled and directed entities

giving rise to red-tapism and excessive interference by
the government in day-to-day functioning.
 Commercial Banks
 Banks have played a pivotal role in India’s agricultural
growth and modernization in addition to freeing large
number of rural people from the clutches of the
moneylenders.

 40% of the adjusted net bank credit (ANBC) is required

to be channelled to priority sectors like agriculture,
small-scale industry etc. Direct credit to agriculture and
allied activities is required to reach at a level of 18% of
net bank credit.

 For most of the post-1991 period, the share of

agriculture has been much lower than 18%.
Regional Rural Banks (RRB’s)
 The Working Group on Rural Banks in 1975
recommended establishment of RRB’s to
supplement the efforts of commercial banks
and cooperatives in extending credit to the
weaker sections of the rural community.

 In 2011-12, RRB’s accounted for 10.7% of

institutional credit provided to agriculture.

 It is plagued with Organizational problems

and problems of recovery.
National Bank For Agriculture and Rural Development (NABARD)

 NABARD is set up as an apex Development Bank with a mandate for

facilitating credit flow for promotion and development of agriculture,
small-scale industries, cottage and village industries. NABARD is
entrusted with

 Providing refinance to lending institutions in rural areas

 Bringing about or promoting institutional development and
 Evaluating, monitoring and inspecting the client banks

Besides this pivotal role, NABARD also:

 Acts as a coordinator in the operations of rural credit institutions

 Extends technical assistance to the government, the Reserve Bank of

India and other organizations in matters relating to rural development.

 Offers training and research facilities for banks, cooperatives and

organizations working in the field of rural development

 Acts as regulator for cooperative banks and RRBs
 Kisan Credit Card Scheme and Micro Finance
Institutions (MFI’s)

 The Kisan Credit Cards (KCC) scheme was

introduced in 1998-99 to facilitate short-term
credit to farmers.

 The problems include poor financial position of

the cooperatives & RRB’s, lack of infrastructure.

 Micro credit involves small loans, up to Rs 25,000,

extended to the poor without any kind of collateral
for undertaking self-employment projects. SHG-
bank linkage programme has emerged as a major
micro-finance initiative.
Credit Monitoring Arrangement

 In order to provide cooperative banks more

freedom and discretion to operate in an
increasingly liberalized and competitive banking
environment, NABARD with RBI launched Credit
Monitoring Arrangement (CMA).

 It has come into effect since 2000-01.

Cooperative Development Fund

 NABARD set up the Cooperative Development

Fund (CDF) in 1993 with the objective of
strengthening cooperative credit institutions
in terms of organizational structure, human
resource development, resource mobilization.

 The assistance is provided to StCB’s, CCB’s,

SCARDB’s, PCARDB’s etc.
Non-Institutional Sources

 Money Lenders

 Traders and Commission Agents

 Rich Friends and Relatives