Types of Agriculture Credit

There are three sorts of credit requirements in agriculture.

1. Short-term credit
2. Medium-term credit
3. Long-term credit

1. Short-term Credit: The period of short-term credit is less than 15 months. Farmers seek short-term credit to cover their agricultural operating capital needs. For example, they require short-term credit to purchase seeds, fertilizers, insecticides, bullocks, and other non-essential items. The short-term loan is returned once the next crop’s output is sold. The proportion of such loans has been high as compared to the medium and long-term credit. During 2010-2014, the increase in this type of loan was 14.77%.

2. Medium-term Credit: The period of medium-term credit ranges from 15 months to five years. Farmers demand medium-term loans for the purchase of cattle, tools, and watercourse improvements. The farmers’ moveable or immovable wealth is used as collateral for the loan.

3. Long-term Credit: Long-term credit is usually for more than 5 years. A long-term investment is required in any sector to establish lasting assets that provide profits over time. Long-term investments in agriculture include sinking wells, land leveling, fencing, and permanent improvements to land, as well as the purchase of large machineries such as a tractor and its attachments, such as trolleys, and the establishment of fruit orchards such as mango, cashew, coconut, sapota (chiku), orange, pomegranate, fig, guava, and so on. Fruit orchards, unlike other seasonal crops, do not produce any income for the first 4 to 5 years. As a result, the money spent in the first 4-5 years becomes a capital expense.

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.