Access to credit is one of the most common ways of improving farmer’s access to inputs. Credit is necessary for the marginal farmers not only to meet their basic economic needs in present, but also for their future socioeconomic development. Since marketable collateral are not always easily available to poor farmers, the risks of lending the money to the borrower are very high. The credit flow problems are not only affecting rich farmers but also marginal farmers who sell labour in the market. In India more than 70% of small farmers have no access to credit from financial institution, and many are often forced to rely on “extortionate money lenders”. The rural financial system comprises not only of traditional sources within both formal (commercial banks, co-operative) and informal (e.g. rural moneylenders) segments, but also new generation institutions with emphasise on micro finance within the two segments.
Kisan Credit Card(KCC) was started with the view of improving farmers access to credit besides the existing facilities for providing the crop loan, the scope of KCC scheme has been enlarged to include loan for agriculture and allied activities and a reasonable component to meet he consumption needs. The credit delivery mechanism is being simplified and more flexible in the use of Kisan Credit Card. A non-wilful defaulter, tenant farmers, sharecroppers who may have been outside the fold of the various schemes, has been included in this scheme. However for this scheme to be successful, education of both the farmers and also the bank official, about the scheme, is required.
Self Help Group (SHG) is a village based financial intermediate usually composed of between 10-15 local women. Members make small regular savings contributions over a few months until there is enough capital in the group to begin lending. Funds may then be lent back to the members or to others in the village for any purpose. In India, many SHGs are linked to banks for delivery of micro-credits. The group members use collective wisdom and peer-pressure to ensure proper end use of credit and timely repayment. This system eliminates the need for collateral and is closely related to that of lending.
There has been a steady increase in the flow of the institutional credit to agriculture. The agency wise share of the credit flow to agriculture shows that the commercial banks accounted for the major share, followed by co-operatives and regional banks. However, there is a declining trend in the share of co-operative banks in the flow of institutional credit over the years, which is indicative of the need for restructuring and reforming these banks. Security requirement problem can be solved by commercial and co-operative banks by evaluating the incremental income resulting from use of credit. National Bank of Agriculture and Rural Development (NABARD) and commercial banks can play a major role in solving the problem of inadequate loan amount available by using the realistic scale of finance to meet the basic consumption of the poor farmers. There should be a uniform rate of interest applied on the farmers. To meet this purpose NABARD should implement a policy of differential rate of interest which would help the poor farmers since the rate of value addition is positively associated with the land holding. Time lag between application and disbursement of loan amount problem can be overcome by commercial and co-operative banks by reducing the time lag between application and disbursements of the loan. Commercial and co-operative banks should simplify the documentation process to take the transaction cost to the lowest level that has been achieved. Recovery and overview is the biggest problem encountered by financial institutions. To overcome this problem recovery of the loan amount must be done in the period of harvest. Also recovery of the loan amount should be rephrased during severe distress like floods and drought or localized events.
Access to credit is not a panacea for alleviation of poverty. The full potential of credit access lies in increasing the welfare of the marginal farmers. This can only be realized if it comprises adequate investments in hard and soft infrastructure as well as investments in human capital. We can hope that if these amendments are implemented, then it would become easier to access loans which will help farmers break out of the clutches of the moneylenders, increase incomes and improve livelihood.
Kisan Credit Card(KCC) was started with the view of improving farmers access to credit besides the existing facilities for providing the crop loan, the scope of KCC scheme has been enlarged to include loan for agriculture and allied activities and a reasonable component to meet he consumption needs. The credit delivery mechanism is being simplified and more flexible in the use of Kisan Credit Card. A non-wilful defaulter, tenant farmers, sharecroppers who may have been outside the fold of the various schemes, has been included in this scheme. However for this scheme to be successful, education of both the farmers and also the bank official, about the scheme, is required.
Self Help Group (SHG) is a village based financial intermediate usually composed of between 10-15 local women. Members make small regular savings contributions over a few months until there is enough capital in the group to begin lending. Funds may then be lent back to the members or to others in the village for any purpose. In India, many SHGs are linked to banks for delivery of micro-credits. The group members use collective wisdom and peer-pressure to ensure proper end use of credit and timely repayment. This system eliminates the need for collateral and is closely related to that of lending.
There has been a steady increase in the flow of the institutional credit to agriculture. The agency wise share of the credit flow to agriculture shows that the commercial banks accounted for the major share, followed by co-operatives and regional banks. However, there is a declining trend in the share of co-operative banks in the flow of institutional credit over the years, which is indicative of the need for restructuring and reforming these banks. Security requirement problem can be solved by commercial and co-operative banks by evaluating the incremental income resulting from use of credit. National Bank of Agriculture and Rural Development (NABARD) and commercial banks can play a major role in solving the problem of inadequate loan amount available by using the realistic scale of finance to meet the basic consumption of the poor farmers. There should be a uniform rate of interest applied on the farmers. To meet this purpose NABARD should implement a policy of differential rate of interest which would help the poor farmers since the rate of value addition is positively associated with the land holding. Time lag between application and disbursement of loan amount problem can be overcome by commercial and co-operative banks by reducing the time lag between application and disbursements of the loan. Commercial and co-operative banks should simplify the documentation process to take the transaction cost to the lowest level that has been achieved. Recovery and overview is the biggest problem encountered by financial institutions. To overcome this problem recovery of the loan amount must be done in the period of harvest. Also recovery of the loan amount should be rephrased during severe distress like floods and drought or localized events.
Access to credit is not a panacea for alleviation of poverty. The full potential of credit access lies in increasing the welfare of the marginal farmers. This can only be realized if it comprises adequate investments in hard and soft infrastructure as well as investments in human capital. We can hope that if these amendments are implemented, then it would become easier to access loans which will help farmers break out of the clutches of the moneylenders, increase incomes and improve livelihood.
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