Q.Distinguish between institutional and non-institutional sources of agricultural credit.
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Start your 14-day free trial to unlock the full solution →Rural credit in India is conventionally divided into two broad categories based on the nature of the lender.
Institutional sources consist of formal, regulated financial institutions: cooperative credit societies (among the earliest institutions set up specifically as an alternative to moneylenders), commercial banks (brought more actively into rural lending especially after nationalisation and priority-sector lending norms), and Regional Rural Banks (RRBs), which were specifically established to combine local rural reach with the resources of the formal banking system to serve small and marginal farmers. Standing above these, NABARD acts as the apex institution, refinancing and supervising cooperative banks and RRBs rather than lending directly to individual farmers. Institutional sources generally offer regulated interest rates and standardised, transparent documentation.
Non-institutional sources consist of informal lenders: moneylenders, traders, commission agents, landlords, and relatives. These sources have historically been easier and faster for a farmer to access, especially where collateral or documentation required by formal institutions is unavailable, or where credit is needed urgently. However, non-institutional credit has long been associated with high — sometimes exploitative — interest rates and less transparent, more one-sided terms, and can trap borrowing households in long-term cycles of indebtedness. …
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