Q.Explain the role and importance of cooperative societies in rural credit market in India.
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Start your 14-day free trial to unlock the full solution →Cooperative societies, organised on the principle of mutual self-help among farmers and structured in a three-tier network reaching down to the village level, have been central to providing Indian farmers low-cost institutional credit and reducing their historic dependence on exploitative moneylenders.
Before institutional credit was developed, Indian farmers depended very heavily on private moneylenders, who often charged exorbitant interest rates and could trap farmers in cycles of debt. Cooperative credit societies were developed specifically to break this dependence, by organising farmers themselves into mutual, self-help credit institutions.
Role and importance of cooperative societies in rural credit:
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Mutual, farmer-owned institution. Cooperative credit societies are formed and owned by farmers themselves on the principle of mutual help, rather than being profit-driven outside lenders — this aligns their purpose with farmers' genuine credit needs rather than extracting maximum interest.
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Low-cost, accessible institutional credit. By pooling farmers' own savings and accessing refinance from higher-tier cooperative/state institutions, these societies can offer credit at far more reasonable interest rates than private moneylenders, specifically for productive purposes such as purchasing seeds, fertiliser, and other farm inputs.
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Multi-tier structure reaching rural India. Rural credit cooperatives are organised in a three-tier structure:
- Primary Agricultural Credit Societies (PACS) at the village level, which deal directly with individual farmers,
- District Central Cooperative Banks, which finance and oversee the PACS within a district, and
- State Cooperative Banks, at the apex, which channel funds down through the district banks to the village societies. This structure allows credit to reach even remote villages, which commercial bank branches alone historically found difficult to cover. …
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