The Agricultural Credit System is one of the important topics under the ESI and ARD sections of both Phase 1 and Phase 2 in the NABARD Grade A Exam. Therefore, for your convenience, we have covered the topic in complete detail. Every mark is of utmost importance in the exam, so it becomes extremely necessary that you cover the topics given in the syllabus with utmost sincerity. We have compiled this eBook covering all necessary aspects of the Agricultural Credit System, so do not forget to download the Agricultural Credit System Ebook for NABARD Grade A.
What Does Agricultural Credit System Mean?
Agricultural credit is essentially needed for agricultural growth. From time to time, agricultural policies have been reviewed to give timely and adequate credit availability to the agriculture sector. The rural credit system calls for more attention as most of the rural families in India live with inadequate savings to finance farming and other economic activities. Lack of simultaneity between expenditure and income realization, coupled with huge agricultural capital investments adds to the misery. The institutionalized credit system is critical to agricultural development. In India, commercial banks, regional rural banks, and cooperative banks have adopted a multi-agency approach to credit the agricultural sector.
Agricultural Credit System – Types of Credit
Based on tenure and the purpose of the credit requirement, agricultural credit is classified under three categories –
» Short-term Credit – Refers to the credit required by farmers to meet their short-term needs (purchasing fertilizers and HYV seeds, meeting expenses on social and religious ceremonies). The tenure of the loan usually does not exceed 15 months and is repaid after the harvest.
» Medium-term Credit – These loans are usually to meet financial requirements like purchasing agricultural equipment or cattle, improving the land, digging up canals, etc. The tenure can go up to 5 years.
» Long-term Credit – This refers to loans taken to purchase a tractor, an additional agricultural land, or to make permanent improvements in the land. These loans are taken for a period of more than 5 years.
There are several types of agricultural credit systems, each with its own characteristics and advantages. Here are some of the main types:
Formal Agricultural Credit:
- Commercial Banks: Commercial banks offer loans to farmers for various agricultural purposes, including crop cultivation, livestock rearing, and equipment purchase. These loans often come with interest rates and are subject to collateral requirements.
- Cooperative Banks: Cooperative banks are owned and operated by agricultural cooperatives or farmers themselves. They provide financial services specifically tailored to the needs of local farmers, often at more favorable terms compared to commercial banks.
- Regional Rural Banks (RRBs): RRBs are financial institutions created to cater to the credit needs of rural and agricultural areas. They are jointly owned by the central government, state governments, and commercial banks.
- Scheduled Banks: In many countries, scheduled banks are required by law to allocate a certain percentage of their lending portfolio to agriculture. This helps ensure a consistent flow of credit to the agricultural sector.
Informal Agricultural Credit:
- Moneylenders: In rural areas where formal banking services are limited, moneylenders often provide credit to farmers. However, these loans may come with exorbitant interest rates, making farmers vulnerable to debt traps.
- Traders and Input Suppliers: Some farmers obtain credit from agricultural input suppliers or traders in exchange for selling their produce to these entities. This type of credit is known as input credit and is common in certain agricultural supply chains.
- Family and Friends: Farmers may also rely on informal sources like family members and friends for financial support in times of need.
Government Agricultural Credit:
- Government Loans and Subsidies: Many governments offer agricultural credit programs, providing loans to farmers at subsidized interest rates or with relaxed collateral requirements. These programs are aimed at promoting agricultural development and improving farmers’ livelihoods.
- Agricultural Development Banks: Some countries have specialized agricultural development banks that exclusively focus on providing credit to farmers and promoting rural development.
Microfinance Institutions:
- Microfinance Institutions (MFIs): MFIs offer small loans and financial services to rural and low-income individuals, including farmers. These institutions often have a strong presence in rural areas and provide credit for agricultural purposes.
Self-Help Groups (SHGs):
- Self-Help Groups: These are community-based organizations formed by rural women or men to collectively save money and provide credit to their members. SHGs empower farmers to access credit within their own communities.
Crop-specific Credit:
- Warehouse Receipt Financing: Farmers can obtain credit by using warehouse receipts as collateral. These receipts represent the stored agricultural produce and can be used to secure loans.
Agricultural Credit System – Sources of Credit
Agricultural credit sources in India can be classified broadly into Non-institutionalized and Institutionalized sources.
» Non-institutionalized Sources of Credit
- Money Lenders
- Commission Agents and Traders
- Relatives
- Landlords
» Institutionalized Sources of Credit
- Co-operative Societies
- Land Development Banks
- Commercial Banks
- Regional Rural Banks
- Government
Also, check out the below-given links
How to Prepare for the NABARD Grade A Exam?
If you are a candidate who has never prepared for the NABARD Grade A Exam before and is scared of the Agriculture section that is asked in the exam, then you must check out the following success stories:
Success Story of Anantha Giri Padmanabhan
Success Story of Himanshu Baliyan
Special Note: Any Graduate candidate from any discipline can apply for this exam. With a systematic way of preparation, aspirants can smoothly get good marks in the Agriculture section.
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