Agricultural Finance

Agricultural Finance

Agricultural finance refers to the credit and funds farmers need to meet both short-term (seeds, fertiliser, labour — crop loans) and long-term (land improvement, irrigation, machinery — term loans) requirements of farming.

Sources of agricultural credit

Non-institutional sources — moneylenders, traders and commission agents, landlords, and relatives/friends. These were historically dominant and remain significant, especially for small and marginal farmers, but are often associated with high interest rates and, in the case of moneylenders, scope for exploitative terms.

Institutional sources — developed deliberately by policy to reduce farmers' dependence on costlier non-institutional credit:

• Co-operative credit institutions — Primary Agricultural Credit Societies (PACS) at the village level, District Central Co-operative Banks, and State Co-operative Banks, historically the first organised institutional channel of rural credit.
• Commercial banks, including public-sector banks, brought into agricultural lending in a major way after bank nationalisation (1969), operating through branch networks and, since the 1990s, through Kisan Credit Cards (KCC) that give farmers a revolving credit line for crop and allied needs.
• Regional Rural Banks (RRBs), set up from 1975 specifically to extend credit to small and marginal farmers, agricultural labourers and rural artisans.
• NABARD (National Bank for Agriculture and Rural Development), established in 1982 as the apex institution for refinancing and coordinating agricultural and rural credit, and for promoting rural infrastructure and self-help groups.

Problems in agricultural finance

• Continuing dependence of many small and marginal farmers on non-institutional sources because of easier access despite higher cost. …