Q.Distinguish between institutional and non-institutional sources of rural credit.

Rural households can borrow either from formally organised lenders or from informal, personal sources, and the two differ sharply in cost and terms.

Institutional sources are formally organised, regulated lenders built up specifically to serve agriculture and rural areas: co-operative credit societies (PACS, District/State Co-operative Banks), commercial banks (including via Kisan Credit Cards), Regional Rural Banks, and NABARD as the apex refinancing and coordinating institution. Interest rates and terms are regulated and generally more favourable, and lending is meant to be need-based rather than personal.

Non-institutional sources are informal lenders operating outside this regulated structure: moneylenders, traders and commission agents, landlords, and relatives/friends. They remain important, especially for small and marginal farmers and for emergency needs, because they are quick and require little documentation — but moneylenders and trader-lenders in particular can charge very high interest and sometimes tie a loan to unfavourable conditions (crop or land pledged as security, or produce tied to sale at a low price).

Students sometimes assume non-institutional credit has disappeared now that banks have expanded into rural areas — in fact it remains significant, especially for small/marginal farmers and for needs that arise suddenly, exactly because institutional credit does not yet reach every household on every occasion.