Finance in agriculture is as important as other inputs being used in agricultural production. Technical inputs can be purchased and used by farmer only if he has money (funds). But his own money is always inadequate and he needs outside finance or credit. Professional money lenders were the only source of credit to agriculture till 1935. They used to charge unduly high rates of interest and follow serious practices while giving loans and recovering them. As a result, farmers were heavily burdened with debts and many of them perpetuated debts. With the passing of Reserve Bank of India Act 1934, District Central Co-op. Banks Act and Land Development Banks Act, agricultural credit received impetus and there were improvements in agricultural credit. A powerful alternative agency came into being.
Largescale credit became available with reasonable rates of interest at easy terms, both in terms of granting loans and recovery of them. Although the co-operative banks started financing agriculture with their establishments in 1930’s real impetus was received only after Independence when suitable legislation were passed and policies were formulated. Thereafter, bank credit to agriculture made phenomenal progress by opening branches in rural areas and attracting deposits. Till 14 major commercial banks were nationalized in 1969, co-operative banks were the main institutional agencies providing finance to agriculture. After nationalization, it was made mandatory for these banks to provide finance to agriculture as a priority sector. These banks undertook special programs of branch expansion and created a network of banking services throughout the country and started financing agriculture on large scale. Thus agriculture credit acquired multi-agency dimension.
Development and adoption of new technologies and availability of finance go hand in hand. In bringing “Green Revolution”, “White Revolution” and “Yellow Revolution” finance has played a crucial role. Now the agriculture credit, through multi agency approach has come to stay. The procedures and amount of loans for various purposes have been standardized. Among the various purposes “Crop loans” (Short-term loan) has the major share. In addition, farmers get loans for purchase of electric motor with pump, tractor and other machinery, digging wells or boring wells, installation of pipe lines, drip irrigation, planting fruit orchards, purchase of dairy animals and feeds/fodder for them, poultry, sheep/goat keeping and for many other allied enterprises.
The major institutions supplying credit to agricultural sectors are :
• Commercial Banks
• Regional Rural Banks
• National Bank for Agricultural and Rural Development
Government: The government sector banks extend both short term as well as long-term loans. These loans are popularly known as “Taccavi loans” which are generally advanced in times of natural calamities. The rate of interest is low and it is not a major source of agricultural finance.
Commercial Banks: Previously commercial banks (CBs) were confined only to urban areas serving mainly the activities of trade, commerce and industry.
The insignificant participation of CBs in rural lending was explained by the risky nature of agriculture due to its heavy dependence on monsoon, unorganized nature and subsistence approach.
Micro financing: Micro financing through Self Help Groups (SHG) has assumed prominence in recent years. SHG is a group of rural poor who volunteer to organise themselves into a group for eradication of poverty of the members. They agree to save regularly and convert their savings into a common fund known as the Group corpus. The members of the group agree to use this common fund and such other funds that they may receive as a group through a common management.
Cooperative Credit Societies: The history of cooperative movement in India dates back to 1904 when first Cooperative Credit Societies Act was passed by the Government. Soon after the independence, the Government of India following the recommendations of All India Rural Credit Survey Committee (1951) felt that cooperatives were the only alternative to promote agricultural credit and development of rural areas. Cooperatives play a very important role in disbursement of agricultural credit. Credit is needed both by the distribution channel as well as by the farmers. The distribution channel needs it to finance the fertilizers business and farmers need it for meeting various needs for agricultural production including purchasing fertilizers.
Regional Rural Banks: In the multi-agency approach to provide credit to agriculture, Regional Rural Banks (RRB’s) have special places. They are state sponsored, regionally based and rural oriented commercial banks. An effort was made to integrate commercial banking within the broad policy thrust towards social banking keeping in view the local peculiarities. The genesis of the RRBs can be traced to the need for a stronger institutional arrangement for providing rural credit. RRBs were supposed to evolve as a specialised rural financial institution for developing the rural economy by providing credit to small and marginal farmers, agricultural labourers, artisans and small entrepreneurs.
National Bank For Agriculture & Rural Development
National Bank for Agriculture and Rural Development (NABARD) was established in the year 1982 by an Act of Parliament and was entrusted with all matters concerning policy, planning and operation in the field of credit for agriculture and other economic activities in rural areas. The Bill for setting up the Bank was passed by the Parliament in December, 1981 and National Bank for Agriculture and Rural Development came into existence on 12th July, 1982. Before that, this job was being done by Reserve Bank of India.
Kisan Credit Card Scheme: The KCCS aims at adequate and timely support from banking system to farmer for crop production and ancillary activities. The credit limit (loan) is sanctioned in proportion to the size of the owned land but some flexibility is provided for leased-in land in addition to owned land. The borrowing limit is fixed on the basis of proposed cropping pattern. The nature of credit extended under KCCS is revolving cash credite., it provides for any number of withdrawals and repayments within the limit. This feature would provide flexibility and reduce the interest burden upon KCCS beneficiary. Role of credit to agriculture cannot be viewed just as a support to food-producing activity but it should focus “need to improve the overall income and economic well being of the farmers” as agriculture has been the basic requisite for national sovereignty.
The analysis of thr relationship between agricultural and non-agricultural growth in India confirms that farm & non-farm sector in rural areas are complimentary to each other and risks mitigating. Rural credit policy and programs need to focus on farm & rural non-farm sector development to alleviate rural poverty, deprivation and suffering.