History of Financing Agriculture in India
History of Financing Agriculture in India
History of Financing Agriculture in India
Farmers get external financial assistance from two sources namely, i) non-institutional or
unorganized agencies, and ii) institutional or organized agencies. It is a fact that agriculture has
been financed by non-institutional agencies for a long time and institutional agencies were
started functioning only during the early part of this century.
Non-Institutional Sources of Finance in India
Non-institutional sources include money lenders, land lords, traders, commission agents, friends
and relatives.
i) Money Lenders
There are two types of money lenders in rural areas. a) agricultural money lenders and
b) professional money lender. Agricultural money lender's main occupation is farming and
money lending is secondary one. Professional money lender's main profession is money
lending. Although the reliance on money lender by rural poor declined over the years, the credit
disbursed by money lenders still forms a major portion of the total credit obtained by the
farmers.
Agricultural money lender's main occupation is farming and money lending is secondary
one while the Professional money lender's main profession is money lending. Although the
reliance on agricultural and professional money lenders by rural poor declined over the years,
i.e., from 80 per cent of their total credit requirement in 1951 to 30 per cent in 2002, the credit
disbursed by money lenders still forms a major portion of the total credit obtained by the
farmers.
Advantages
i.
ii.
Easy access by farmers as money lenders maintain close relationship with rural
families.
iii.
iv.
v.
vi.
Money lenders do not insist upon any particular type of security for the grant of
loans.
Money lenders deceive the farmers through many ways such as:
a. They manipulate bonds and promissory notes obtained from debtors and enter
large sum than actually lent.
b. They give no receipt for repayments and often they deny such repayments.
c. They charge very high rate of interest
d. They give loans for both productive and unproductive purposes which results in
indebtedness
Proportion of Borrowing* by Farmers from Organized and Unorganized
Lending Agencies
(percentages)
Lending Agencies
1951
1961
1971
1981
1991
2002
I Organized Agencies
1.Government
3.3
6.7
7.1
4.0
6.1
2.3
2. Co-operatives
3.1
11.4
22.0
29.0
21.6
27.3
3.Commercial Banks
0.9
0.3
2.4
28.0
33.7
24.5
0.2
2.6
3.0
7.3
18.4
31.7
61.0
64.0
57.1
1.5
0.9
8.1
4.0
4.0
1.0
24.9
48.1
23.0
9.0
7.0
10.0
44.8
13.8
13.1
8.0
10.5
19.6
5.5
7.1
8.4
3.0
2.2
2.6
14.2
5.2
13.1
9.0
5.5
7.1
6. Others
1.8
6.5
2.6
6.0
6.8
2.6
Sub-Total
92.7
81.6
68.3
39.0
36.0
42.9
100.0
100.0
100.0
100.0
Total
100.0
100.
0
b) Reserve Bank of India, All India Debt and Investment Survey Report, 1961-62,1971-72,
1981-82, 1991-92 and 2003.
ii) Land Lords
Small farmers and tenants rely on land lords for finance to meet out their productive and
unproductive expenses. This source of finance has all the defects associated with money
lenders. Interest rates are exorbitant. Often small farmers are forced to sell out their lands to
these
land lords and they become land less labourers. Landless labourers bonded labourers.
The reliance on this agency by farmers has been decreased over years, i.e., from 1.5 per cent
in 1951 to 1.0 per cent in 2002.
iii) Traders and Commission Agents
They are functioning either to get regular supply of products for their trade or to have a
control over the provision of credit by other creditors. Though the rate of interest charged by
them is not as high as charged by the money lenders, they charge more in the form of
concessions and service chages, They mostly finance for the cultivation of commercial crops
like sugarcane, cotton, ground-nut, tobacco, onion, etc. The share of credit provided by these
agencies to total credit decreased from 5.5 per cent in 1951 to 2.5 per cent in 2002.
iv) Relatives
Farmers borrow from their relatives for temporary exigencies. It is simply a mutual help.
Since all farmers are living under similar conditions, they can not lend large sums as loans.
Normally, no interest is paid on such loans. Although, the private agencies satisfied some of the
criteria of a good system of credit,their loan were not related to production purposes, they never
cared for the end use of the loan extended and the loan is often used for wasteful purposes.
However, institutions adopt a productive and
credit. So this policy made the institutions to discourage the provision of credit to consumption
purpose. But it is evident that the need for consumption loan in rural households continues to
persist. As the institutions deny consumption loans to farmer's, the non-institutional agency
continues to dominate the rural credit system. Moreover, the institutional agencies could not
provide more than 60-65 per cent of the total credit needs of the farmers. Therefore, the private
credit agencies should be brought under a more realistic system of state regulation. Otherwise,
the rural people would continue to suffer from indebtedness in spite of various efforts taken by
the government to uplift their economic conditions. Their share has declined from 14.2 per cent
in 1951 to 7.1 per cent in 2002.
Institutional Credit Agencies
1) Quantum of loan is determined an the basis of value of security offered, by which, large
farmers receive more credit than small and marginal farmers.
2) As these loans are not production oriented, they do not satisfy the standard needed for sound
system of form credit.
3) The loan amount is inadequate.
4) The land less labourers were left out in the lurch at the time of distress.
5) The taccavi loans are not popular among farmers due to
incompetent supervision
In view of these demerits, it was recommended to channalise these loans through cooperatives.
a)
Instead of playing direct role in providing form credit, the government may play a vital role in
creating conditions or infra-structural facilities to the promotion of institutional credit.