HISTORY OF FINANCING AGRICULTURE IN INDIA
Finance in agriculture is as important as other inputs being used in agricultural
production. Technical inputs can be purchased and used by farmer only if he has money
(funds). But his own money is always inadequate and he needs outside finance or credit.
Professional money lenders were the only source of credit to agriculture till 1935. They used to
charge unduly high rates of interest and follow serious practices while giving loans and
recovering them. As a result, farmers were heavily burdened with debts and many of them
perpetuated debts. With the passing of Reserve Bank of India Act 1934, District Central Co-op.
Banks Act and Land Development Banks Act, agricultural credit received impetus and there
were improvements in agricultural credit. A powerful alternative agency came into being. Large-
scale credit became available with reasonable rates of interest at easy terms, both in terms of
granting loans and recovery of them. Although the co-operative banks started financing
agriculture with their establishments in 1930’s real impetus was received only after
Independence when suitable legislation were passed and policies were formulated. Thereafter,
bank credit to agriculture made phenomenal progress by opening branches in rural areas and
attracting deposits.
Till 14 major commercial banks were nationalized in 1969, co-operative banks were the
main institutional agencies providing finance to agriculture. After nationalization, it was made
mandatory for these banks to provide finance to agriculture as a priority sector. These banks
undertook special programs of branch expansion and created a network of banking services
throughout the country and started financing agriculture on large scale. Thus agriculture credit
acquired multi-agency dimension. Development and adoption of new technologies and
availability of finance go hand in hand. In bringing "Green Revolution", "White Revolution" and
"Yellow Revolution" finance has played a crucial role. Now the agriculture credit, through multi
agency approach has come to stay.
The procedures and amount of loans for various purposes have been standardized.
Among the various purposes "Crop loans" (Short-term loan) has the major share. In addition,
farmers get loans for purchase of electric motor with pump, tractor and other machinery, digging
wells or boring wells, installation of pipe lines, drip irrigation, planting fruit orchards, purchase of
dairy animals and feeds/fodder for them, poultry, sheep/goat keeping and for many other allied
enterprises.
Agricultural Credit System 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. Unrestricted supply of credit for any purpose..
ii. Easy access by farmers as money lenders maintain close relationship with rural
families.
iii. Method of business adopted are simple and flexible.
iv. Timely availability of credit without much formalities.
v. Knowledge on local conditions and experience of money lender facilitate his
business.
vi. Money lenders do not insist upon any particular type of security for the grant of
loans.
Unfair Practices of Money Lenders
Finance in agriculture is as important as other inputs being used in agricultural
production. Technical inputs can be purchased and used by farmer only if he has money
(funds). But his own money is always inadequate and he needs outside finance or credit.
Professional money lenders were the only source of credit to agriculture till 1935. They used to
charge unduly high rates of interest and follow serious practices while giving loans and
recovering them. As a result, farmers were heavily burdened with debts and many of them
perpetuated debts. With the passing of Reserve Bank of India Act 1934, District Central Co-op.
Banks Act and Land Development Banks Act, agricultural credit received impetus and there
were improvements in agricultural credit. A powerful alternative agency came into being. Large-
scale credit became available with reasonable rates of interest at easy terms, both in terms of
granting loans and recovery of them. Although the co-operative banks started financing
agriculture with their establishments in 1930’s real impetus was received only after
Independence when suitable legislation were passed and policies were formulated. Thereafter,
bank credit to agriculture made phenomenal progress by opening branches in rural areas and
attracting deposits.
Till 14 major commercial banks were nationalized in 1969, co-operative banks were the
main institutional agencies providing finance to agriculture. After nationalization, it was made
mandatory for these banks to provide finance to agriculture as a priority sector. These banks
undertook special programs of branch expansion and created a network of banking services
throughout the country and started financing agriculture on large scale. Thus agriculture credit
acquired multi-agency dimension. Development and adoption of new technologies and
availability of finance go hand in hand. In bringing "Green Revolution", "White Revolution" and
"Yellow Revolution" finance has played a crucial role. Now the agriculture credit, through multi
agency approach has come to stay.
The procedures and amount of loans for various purposes have been standardized.
Among the various purposes "Crop loans" (Short-term loan) has the major share. In addition,
farmers get loans for purchase of electric motor with pump, tractor and other machinery, digging
wells or boring wells, installation of pipe lines, drip irrigation, planting fruit orchards, purchase of
dairy animals and feeds/fodder for them, poultry, sheep/goat keeping and for many other allied
enterprises.
Agricultural Credit System 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. Unrestricted supply of credit for any purpose..
ii. Easy access by farmers as money lenders maintain close relationship with rural
families.
iii. Method of business adopted are simple and flexible.
iv. Timely availability of credit without much formalities.
v. Knowledge on local conditions and experience of money lender facilitate his
business.
vi. Money lenders do not insist upon any particular type of security for the grant of
loans.
Unfair Practices of Money Lenders
