Sources of rural credit
Credits are divided into two categories. They are as follows:
- Non- institutional sources
- Institutional sources
Non- institutional sources:
- Money Lenders: Moneylenders have been an important source of farm financing since the beginning. Moneylenders provided a large share of agricultural credit (69.7% in 1951-52) and engaged in unethical practices such as account manipulation and charging a high rate of interest on their loans. As a result of all of these reasons, the share of money lenders in overall farm credit has dropped dramatically, from 69.7% in 1951-52 to 7% in 1995-96.
- Landlords: In India, small and marginal farmers, as well as tenants, are borrowing money from landlords to cover their financial needs. This site has been following all of the shady dealings of money lenders, merchants, and others. This source’s contribution to rural leper cents rose from 3.3 percent in 1951-52 to 10% in 1995-96.
- Traders and commission agents: Traders and commission agents advance loans to agriculturists for productive purposes before crop maturity at very low interest rates and charge a high commission.
Institutional sources
- Co-operative credit societies: Co-operative credit societies are unquestionably the cheapest and greatest sources of rural financing in India. Active primary agricultural credit societies (PACS) in India span roughly 86 percent of Indian villages and account for nearly 36% of the country’s total rural population. In 1996, co-operatives accounted for over 40% of total agricultural loans, up from only 3% in 1951-52.
- Commercial Banks: In the beginning, our country’s commercial banks will only play a little role in developing rural finance. However, following the nationalization of commercial banks, they began to provide financial assistance both directly and indirectly, and for both short and medium terms. Commercial banks’ direct advances were limited to Rs. 44 crore till 1969, but by March 2000, the total amount owed had risen to Rs. 22,854 crore.
- Regional Rural Banks: Regional Rural Banks was founded in 1975 to supplement the rural credit provided by commercial banks and cooperatives. Since 1975, these regional rural banks have provided direct loans for productive purposes to small and marginal farmers, agricultural laborers, and rural artisans, among others. 196 RRBs lent almost Rs. 1500 crore to rural people annually until June 1996, with more than 90% of these loans going to the weaker class.
Role of Micro-Credit in Meeting the Credit Requirements of the Poor
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.
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