Credit plays a Significant Role in Rural Development

The two most important criteria for rural development are finance and credit. Low income in rural areas frequently leads to a low rate of savings. It is extremely difficult for farmers to boost their production by investing in their farmland. Furthermore, the few banks that exist in rural areas prefer to lend to farmers with significant land holdings. Due to the difficulty in obtaining credit from banks, small and marginal farmers are the easy target for money lenders. Credit infusion is critical for the growth of the agricultural sector, which leads to rural economic development. The following points emphasize the relevance of credit in rural development:

• Credit aids farmers in commercializing their operations. To put it another way, commercial farming necessitates the use of credit. Because small and marginal farmers produce mainly for their own livelihood, they do not earn enough surpluses to reinvest in their fields, resulting in land degradation.
• Crops have a long gestation period between sowing and harvesting, farmers are granted credit for fulfilling their initial agricultural input needs, such as seeds and fertilizers.
• Credit allows farmers to break free from the cycle of poverty. Farmers require finances to meet both general and specific requirements. Credit will be used to meet these requirements.
• Agriculture has continually been a situation to the whims of the weather. Farmers are the ones who suffer the most in the absence of a decent monsoon or crop failure. Crop insurance and farm loans play an important role in preventing such tragedies.

Microcredit refers to credit and other financial services provided to the needy through self-help groups (SHGs) and non-governmental organizations (NGOs). By instilling saving habits among rural households, Self Help Groups play a critical role in satisfying the credit needs of the poor. Many farmers’ own funds are pooled together to cover the financial needs of the SHGs’ needy members. The banks have been linked to the members of these groups. In other words, SHGs allow economically disadvantaged individuals to develop strength by joining a group. In addition, financing through SHGs lowers transaction costs for both lenders and borrowers. The National Bank for Agricultural and Rural Development (NABARD) was instrumental in securing credit at preferential rates. Currently, more than seven lakh SHGs working in rural areas. Because of its informal credit delivery method and minimal legal requirements, SHGs’ programs are gaining popularity among small and marginal borrowers.

Moneylenders and dealers exploited small and marginal farmers and landless laborers during the time of independence by lending to them at excessive interest rates and manipulating their accounts to keep them in debt. After 1969, when India embraced social banking and a multiagency approach to fully satisfy the needs of rural credit, a huge shift occurred. Later, in 1982, the National Bank for Agriculture and Rural Development (NABARD) was established as an apex entity to coordinate the activities of all rural financial institutions. The Green Revolution foreshadowed huge changes in the credit system since it resulted in a diversification of rural credit portfolios toward production-oriented lending.