Agricultural credit in India is sourced from a combination of institutional and non-institutional channels. These sources cater to the diverse financial needs of farmers, ranging from short-term operational costs to long-term investments.
A. Institutional Sources
Institutional sources of agricultural credit are formal and regulated entities that provide credit at reasonable interest rates with transparent terms and conditions.
- Commercial Banks
- Play a significant role in disbursing agricultural credit, especially after the nationalization of banks in 1969.
- Provide short-term, medium-term, and long-term loans for agricultural operations and infrastructure development.
- Special focus on priority sector lending, including agriculture.
- Cooperative Credit Societies
- Oldest form of institutional credit in India, designed to cater to the credit needs of farmers.
- Includes Primary Agricultural Credit Societies (PACS), District Central Cooperative Banks (DCCBs), and State Cooperative Banks.
- Provide short-term credit for seasonal agricultural activities and medium-term credit for asset creation.
- Regional Rural Banks (RRBs)
- Established to serve rural areas, particularly small and marginal farmers, agricultural laborers, and rural artisans.
- Offer credit at concessional rates and are often supported by government initiatives.
- Land Development Banks (LDBs)
- Provide long-term credit for investment in agriculture, such as land development, irrigation, and machinery.
- Operate through a network of primary land development banks at the district level.
- NABARD (National Bank for Agriculture and Rural Development)
- Apex body for agricultural and rural finance in India.
- Provides refinance support to banks and institutions, formulates credit policies, and promotes rural development projects.
- Microfinance Institutions (MFIs)
- Focus on providing small loans to rural households, often targeting women and smallholder farmers.
- Play a complementary role in addressing the financial needs of underserved populations.
- Government Schemes and Programs
- Include initiatives like the Kisan Credit Card (KCC), Pradhan Mantri Fasal Bima Yojana (PMFBY), and interest subvention schemes.
B. Non-Institutional Sources
Non-institutional sources are informal and unregulated channels that historically played a dominant role in rural finance but often charge high-interest rates.
- Moneylenders
- Provide quick and easy access to credit, especially in remote areas where institutional credit is unavailable.
- However, exploitative practices and high-interest rates are significant concerns.
- Friends and Relatives
- A common source of credit for small-scale and marginal farmers.
- Typically offered without interest or at nominal rates but limited by personal relationships.
- Traders and Commission Agents
- Extend credit to farmers, often tied to the purchase of inputs or sale of produce.
- Credit terms are informal and can sometimes lead to exploitative dependency.
- Landlords
- Offer loans to tenant farmers or sharecroppers, often tied to land lease agreements.
- Interest rates and repayment terms vary widely.
Comparison of Institutional and Non-Institutional Sources
| Aspect | Institutional Sources | Non-Institutional Sources |
| Regulation | Regulated and monitored | Unregulated and informal |
| Interest Rates | Low and standardized | High and arbitrary |
| Access | Often bureaucratic, requiring formalities | Quick and informal |
| Reliability | Stable and transparent | Dependent on relationships and terms |
| Exploitation Risk | Minimal | High, due to lack of oversight |
Challenges and Way Forward
- Challenges with Institutional Credit: Procedural delays, lack of awareness, and poor accessibility in remote areas.
- Challenges with Non-Institutional Credit: Exploitative practices and lack of financial inclusion.
Efforts to strengthen institutional credit, including digital lending platforms, financial literacy campaigns, and targeted government programs, can help ensure farmers have equitable access to affordable credit. Promoting self-help groups (SHGs) and cooperatives can also reduce reliance on non-institutional sources.