Rural Credit

Introduction

Rural credit is an extremely important step in financing agriculture, which is a major resource for generating food for millions of citizens. Many farmers in rural areas are unable to bear the burden of farming by themselves and they need assistance from either banks or the government. Rural credit, when provided to the right people, makes farming easier for the underprivileged farmers and artisans who reside in rural locations of the country.

What is Rural Credit?

India’s rural population is mostly engaged in agriculture. The people who are involved in agriculture need financial assistance to harvest crops. The funding must be provided at the start of the farming process, and the farmers and peasants take loans every year to start farming. These loans taken by the farmers are returned back to lenders after harvest when the crops are sold. The process and amount of lending loans to farmers and small business owners in rural places of India is known as rural credit.

Sources of Rural Credit

There are many resources from which the farmers can avail monetary assistance. However, non-formal sources are considered detrimental for the farmers as they charge exorbitant amounts and make it hard for the farmers to pay back the loan, which in turn affects the entire farming process.

When we talk about the genuine sources of rural credit, there are five major sources which are the following −

Land Development Banks

Land development banks provide agriculture or farming loan in exchange for land as collateral. These loans have a repayment tenure of 15 to 20 years and the interest rates charged are very low. Farmers can avail these loans to create wells as well as other irrigation-related facilities. These loans are considered the best among all loans provided to rural people. However, only a fraction of the rural population is aware of these loans and hence they remain very underutilized.

Co-operative Credit Societies

These societies offer agricultural or rural credit at the most economical rate. These loans are provided by Primary Agriculture Credit (PAC) societies. Most of these societies are run by self-supported unions, and they cater to small and medium-range farmers. In fact, co-operatives are considered the best option for availing credit by the poor farmers. However, these societies have not been able to lessen the grip of moneylenders on the rural, poor farmers, which is a major failure of the system.

Regional Rural Banks

Regional Rural Banks or RRBs are established by the government to provide loans to marginal farmers, landless laborers, and artisans. These banks are aimed at providing necessary help to farmers and artisans who are in dire need of funds to sustain their livelihood. The loans provided by RRBs have a very low-interest rate and they are considered much safer than other offers extended to underprivileged farmers.

Commercial Banks

The general commercial banks had a negative approach to providing loans to farmers earlier. But now, the conditions have changed palpably and many commercial banks now offer loans to farmers from rural areas. Monetary assistance is now provided to rural farmers by commercial banks through both direct and indirect means. Direct loans are monetary assistance that are provided to farmers for simplifying the agriculture process while indirect loans are the ones that are provided via agencies or other financial institutions.

Government

Government offers a special kind of loan known as Taccavi Loan to struggling farmers in the aftermath of natural calamities. These loans have a very low-interest rate and are offered to ease the struggle, especially after the crops have been destroyed by natural calamities, such as drought or flood.

Types of Rural Credit

Depending on the tenure of the repayment of the credit facility, rural credits are divided mainly into three categories. These are the following.

• Small-term Credit − These loans usually have a repayment tenure of one year at the maximum. These loans, therefore, act as a brief business or private capital requirement instead of a whole agriculture loan. Nonetheless, these loans are offered to the population residing in rural locations, so they are considered rural credit.

• Medium-term Loan − These loans usually have a repayment tenure of more than one year to less than 10 years. The amount of loan and rate of interest charged in these loans depends upon the credit history and a host of other factors of the individual availing the loan.

• Long-term Loan − In the case of long-term credit, the loan is of considerable sum and the maximum tenure of repayment may extend up to 20 years. These loans are usually availed by large farming entities for creating farming assets. For example, farmers may avail of long-term loans to buy tractors, machinery for agriculture, and other assets.

Importance of Rural Credit

Rural credit is important for a host of reasons. The reasons that are applicable for farmers in India include the following −

• Improve Agriculture and Sustain Their Livelihood − The gestation period of agriculture between the period of sowing to selling them is considerably long. So, small and medium farmers need assistance in the gestation period for their livelihood. Rural credit can help them in such situations. By availing of rural credit, farmers can not only improve their agriculture, but they can also sustain their livelihood with dignity.

• Buy The Necessary Farming Items − Rural credit may help farmers buy the necessary items for continuing the farming process, such as seeds, fertilizers, pesticides, etc. The need for this assistance is the most for the small farmers who cannot avail of loans at lower rates from the moneylenders who charge very high rates for their loans. Thus, rural credit mitigates the need for cash for buying agriculture needs and equipment.

• Meet other expenses − Rural credit is also applicable for other needs than agriculture, such as marriage, religious functions, and death, etc. By having the loans, small farmers and laborers can meet these expenses without having to pay too much interest that is charged by local moneylenders.

Conclusion

Rural credit is a loan to the neediest and for those who work tirelessly to prepare food for the entire population of the country. Their needs must be taken care of and hence no one can deny the importance of rural credit.

FAQs

Qns 1. What is meant by rural credit?

Ans. The process and amount of lending loans to farmers and small business owners in rural places of India is known as rural credit.

Qns 2. Do commercial banks provide rural credit?

Ans. Earlier, rural credit was not available in commercial banks but now, they also provide rural credit to farmers and artisans.

Qns 3. What is meant by PAC societies in the case of rural credit?

Ans. PAC means Primary Agriculture Credit societies in the case of rural credit.