Economics · Ch 10 — Rural Economy
Agricultural Finance and Rural Credit
Agricultural Finance and Rural Credit
Farming requires credit for seeds, fertiliser, equipment, irrigation, and to bridge the gap between the cost of cultivation and the eventual sale of the crop. The sources from which rural households borrow are usually classified into two broad groups.
| Source type | Examples | General characteristics |
|---|---|---|
| Institutional | Cooperative credit societies, commercial banks, Regional Rural Banks (RRBs), NABARD (apex refinancing role) | Regulated interest rates, formal documentation, part of a policy effort to expand rural credit access |
| Non-institutional | Moneylenders, traders, commission agents, landlords, relatives | Historically easier and faster to access, but often at high (sometimes exploitative) interest rates and less transparent terms |
Institutional sources. Cooperative credit societies were among the earliest formal institutions set up specifically to provide farmers an alternative to moneylenders. Commercial banks were brought more directly into rural lending after bank nationalisation and the subsequent priority-sector lending requirements. Regional Rural Banks (RRBs) were established specifically to combine the local reach and low-cost structure needed to serve small and marginal farmers with the resources of the formal banking system. Standing above these, the National Bank for Agriculture and Rural Development (NABARD) functions as an apex institution — it does not usually lend directly to individual farmers but instead refinances and supervises the cooperative banks, RRBs and other rural credit institutions, and plays a broader role in rural development finance and policy. …
Rural credit supplied by regulated formal institutions — cooperative credit societies, commercial banks, and Regional Rural Banks — generally at …
Rural credit supplied by informal sources such as moneylenders, traders and landlords, often at high interest rates and with …
The National Bank for Agriculture and Rural Development — the apex institution for rural credit in India, which refinances and supervises cooperative banks and Regional Rural Banks and supports …