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Agricultural Finance and Agricultural Credit-Role of Institutional and Non - Institutional Agencies-Rural Indebtedness
Agricultural Finance and Agricultural Credit-Role of Institutional and Non - Institutional Agencies-Rural Indebtedness
MACRO
Study
of borrowing funds by farmers
of the organization and operation of farm lending agencies,
and of society’s interest in credit for agriculture
Agricultural Finance
• Tandon and Dhondyal (1962): AF is a branch of
Agricultural Economics which deals with the
provision and management of bank services
and financial resources related to individual
farm units.
MICRO
Subba Reddy & Raghu ram (1996): Agricultural
Finance is studying, examining and analysing
the financial aspects pertaining to farm
business.
Importance
• Vital importance at micro & macro level
– Farm level assets, firms & infrastructure
– Macro level social projects, industries & infrastructure
• Plays catalytic role: strengthening farm business
and enhancing productivity of resources
– HYV & Hybrid seeds and related inputs
– Mechanization
• Development of input & output markets
Subject Matter & Nature
• Farm Financial Management
– Decisions
– Characteristics (nature) of decisions
– Steps in Process of FFM
FFM Decisions
• Decisions regarding:
– Requisite of Capital
– Sources of Capital
– Allocation of Capital MR = MC
– Counter Risk and Uncertainty (diversification,
flexibility, insurance, contracts, production
management and back-up management)
– Legal Problems
Characteristics of FF Decisions
• Frequency (Periodic, recur and dynamic)
• Importance (profit, loss and alternatives)
• Imminence (quick)
• Revocability (corrections, cost…TIME)
• Alternative Decisions (availability/TIME)
Steps in Process of FFM
• Objectives
• Problem recognition
• Analysis
• Decision Making
• Action
• Accepting the consequences
• And Evaluation
Scope of FFM
• Three basic activities of Farm management
– Production activities
– Financial activities (more often & exclusive)
– Marketing activities
Agricultural Credit
• Credit is certain amount of money provided
for certain purpose on certain conditions with
some interest which should be repaid sooner
or later.
Classification of Credit / Loan
Credit
Source Purpose Time Security Liquidity Activity Approach Contact
Formal Production Short term Secured Unsecured Self Individual Direct
Chattel
Mortgage
Simple
Equitable
Hypothecation
Key loans
Open loans
Classification of Credit / Loans
I. Based on purpose
1. Production Loans: for crop production- also called seasonal
agricultural operations (SAO) loans or short –term loans or crop
loans. repayable within a period ranging from 6 months to 18
months in lumpsum.
2. Investment Loans: Loans given for equipment whose productivity
is distributed over more than one year- for tractors, pumpsets,
tube wells, livestock, etc.,
3. Marketing Loans: to overcome distress sales - Regulated markets
& commercial banks, based on the warehouse receipt- financial
assistance - 75 per cent of the value of the produce
4. Consumption Loans: some purpose other than production, - not
very widely advanced and restricted to those areas, which are hit
by natural calamities- to be repaid within five crop seasons or 2
½ years whichever is less. The rate of interest is around 11 per
cent.
II. Based on Time
vi. Money lenders do not insist upon any particular type of security
for the grant of loans.
Malpractices
a. They manipulate bonds and promissory notes obtained from
debtors and enter large sum than actually lent.
b. They give no receipt for repayments and often they deny such
repayments.
4) The land less labourers were left out in the lurch at the time of
distress.
CAUSES:
• The Indian Farmer borrows year after year but
he is not in a position to clear off the loans
• Borrow for various purposes
• Slow returns
• Crops fail
• Market failure
• Social customs
– Marriage, religious ….
• Litigation Vicious cycle
• Inherited debt
• Money lenders
– High interest
– False accounts