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Agricultural Finance: Classification and Sources – NABARD Agriculture Notes

Agriculture Finance Notes

Agriculture and Rural Development is an important part of NABARD Grade B & Grade A Officer Exam. In this blog we are providing you free NABARD Agriculture Notes on the topic of Agriculture Finance. We will be discussing the classification of Agriculture Finance need and the various sources of Agri-Finance. This study notes would help you score well in your ARD paper of NABARD Exam.

Agricultural Finance – Study Notes for NABARD

Lets begin with understanding the Classification of Agriculture Finance Needs -:

Classification of Agriculture Finance Needs

The need of Agricultural Finance can be classified into 2 categories -:

  • On the Basis of Time -: Agriculture Finance requirements on basis of time can be further categorised into 3 types – Short Term, Medium Term and Long Term. The details of these 3 types are given below.
  • On the Basis of Purpose -: Under this category, the needs of farmers are divided in 3 types as well. They are Productive, Consumptive and Unproductive. Details of all 3 types are given below.

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Time Based Agriculture Finance Needs (Loans)

Short Term -: Loans taken to meet needs like payment of labour wages, buying of fertilizers, pesticides, seeds, fodder (for livestock), etc. These loans are for the period of up to 15 months. Farmers usually turn to Co-operative societies and money lenders to meet their short-term Agricultural Finance needs.

Medium Term -: Purchase of Agricultural Equipment’s, Cattle, building/repairing of wells on farmland, etc comes under medium term needs. The loans taken to meet these demands are usually for a period ranging from 15 months to 5 years. Agencies like commercial banks, co-operative societies, money lenders, etc provide the loans to meet medium term needs of agricultural Finance.

Long Term -: When Farmers want to purchase new land, Agri equipment’s like tractors, etc. long term loans are required. These are for a period of more than 5 years. These loans are provided by Commercial Banks, Primary Cooperative Agricultural and Rural Development Banks (PCARDBS), etc.

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Purpose Based Agriculture Finance Needs

Productive -: Needs which have a direct impact on the productivity and the loans/credit taken to meet them come under this category. It would include buying of fertilizers, seeds, small agricultural equipments, land improvement, wages, etc. These needs are met by loans from institutional credit agencies.

Consumptive -: Small farmers sometimes require credit to meet their consumption needs because of the lack of capital wealth with them. These types of needs are met by taking loans from money lenders.

Unproductive -: Under this type, the financial assistance required for non-productive expenses like marriages and family functions or emergencies, etc are included. These types of needs are also met by taking credit/loans from Money lenders.

After understanding the Agricultural Finance needs now let’s look at the Sources of Agriculture Finance and their classification.

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Sources of Agriculture Finance

These can be Classified in 2 types -:

  • Institutional Sources
  • Non-Institutional Sources

Institutional Sources of Agricultural Finance

1) Government -: Government Supports Agriculture Finance through Tacavvi Loans (during natural calamities), farm loan waivers, Credit Schemes (Kisan Credit Card scheme), etc.

2) Cooperative Credit Societies -: It includes Primary Agricultural Credit Societies (PACs), District Central Cooperative Banks (DCCBs), State Co-Operative Banks (SCBs) for Short term credit and for Long term credit we have Primary Co-Operative Agriculture and Rural Development Banks (PCARDBs) and State Co-Operative Agriculture and Rural Development Banks (SCARDBs).

3) Commercial Banks – They play a major role under governments lead bank scheme which rural districts have been assigned to various major banks who have to co-ordinate with the local RRBs and cooperative banks for the Agricultural and rural development of the district.

4) Regional Rural Banks (RRBs) -: They work in co-ordination with commercial banks to meet credit needs for Agriculture.

5) Micro financing – This includes Local Self Help Groups (SHGs), Non-Governmental Organisations (NGOs) which provide small loans without collateral.

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Non-Institutional Sources of Agricultural Finance

1) Traditional Money Lenders – Village Mahajans, Sahukars, Seths etc.

2) Relatives

3) Landlords

4) Gold Shopkeepers.

Agriculture Finance – Role of NABARD

NABARD – National Bank for Agricultural and Rural Development is the Apex body in the field of Agricultural Finance in India. It was formed in 1982. It is the Nodal Agency for running government schemes for Agricultural Finance like –

  • Rural Infrastructure Development Fund
  • Micro Finance Innovations
  • Kisan Credit Card Schemes
  • Interest Subsidy for Short Term Credit to Farmers, etc.

It is responsible for development of Institutionalized Credit system for Agriculture in India. For this It provides short, medium and long term loans to all institutionalized credit agencies like Commercial Banks, RRBs, DCCBs, SCBs, etc.

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That is all from us in this blog on Agricultural Finance: Classification and Sources. We hope you liked reading the free Agriculture and Rural Development Study Notes for NABARD Grade B and Grade A Officer Exam. Keep visiting this space for all the NABARD 2019 Exam updates, FREE Study Notes and Mock Tests.

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