Agricultural Credit & NABARD
🟠 Topic 25: Agricultural Credit & NABARD
📌 Introduction
Agricultural credit plays a crucial role in rural development by enabling farmers to purchase seeds, fertilizers, machinery, and invest in irrigation and storage facilities. In India, timely and affordable credit is essential due to the dominance of small and marginal farmers, who often lack sufficient resources.
The National Bank for Agriculture and Rural Development (NABARD) is the apex institution for rural credit and agricultural financing, ensuring that the institutional credit system reaches the last mile farmer.
🔹 Importance of Agricultural Credit
Why Credit is Crucial for Farmers
1️⃣ Working Capital – Purchase of seeds, fertilizers, pesticides.
2️⃣ Investment Capital – Investment in land improvement, irrigation systems, machinery.
3️⃣ Risk Mitigation – Protection against climate shocks and price volatility through insurance-linked credit.
4️⃣ Enhancing Productivity – Adoption of modern techniques and equipment.
5️⃣ Income Diversification – Promoting livestock, fisheries, horticulture through credit support.
🔎 Types of Agricultural Credit
| Type | Duration | Purpose |
|---|---|---|
| Short-Term Credit | Less than 15 months | Working capital, seeds, fertilizers |
| Medium-Term Credit | 15 months to 5 years | Land improvement, farm equipment |
| Long-Term Credit | More than 5 years | Major investments like irrigation, machinery, land purchase |
Sources of Agricultural Credit in India
| Source | Features |
|---|---|
| Cooperative Credit Institutions | Major credit providers in rural areas; PACs at village level |
| Commercial Banks | Provide both short-term and long-term loans |
| Regional Rural Banks (RRBs) | Focused on rural credit delivery |
| Microfinance Institutions | Offer small loans to SHGs and individuals |
| NBFCs | Increasing presence in rural credit, especially equipment loans |
| Informal Sources | Moneylenders, traders, landlords – high interest rates and exploitative terms |
🔹 Evolution of Agricultural Credit Policy
Pre-Independence
- Dominance of moneylenders.
- High-interest rates led to chronic indebtedness.
Post-Independence
- Focus on institutionalizing rural credit.
- Cooperative Movement promoted for local credit delivery.
Post-1969 (Bank Nationalization)
- Directed lending mandates.
- Priority Sector Lending (PSL) introduced to mandate agricultural lending by banks.
Post-1991 Reforms
- Deregulation of interest rates.
- Emphasis on self-help groups (SHGs), microfinance, and financial inclusion.
🔹 NABARD – Apex Rural Credit Institution
📖 What is NABARD?
- Established in 1982 based on the recommendations of the Sivaraman Committee.
- Apex institution for rural credit and agricultural development financing.
- Regulates and refinances cooperatives, RRBs, and rural financial institutions.
🔎 Functions of NABARD
| Function | Description |
|---|---|
| Refinance | Provides credit to rural financial institutions for lending to farmers. |
| Development | Promotes financial inclusion, self-help groups, FPOs. |
| Monitoring | Supervises cooperative banks and RRBs. |
| Policy Planning | Advises the government on rural credit policies. |
| Infrastructure Funding | Funds rural infrastructure projects under RIDF (Rural Infrastructure Development Fund). |
Key NABARD Schemes
| Scheme | Focus |
|---|---|
| Rural Infrastructure Development Fund (RIDF) | Infrastructure in irrigation, rural roads, markets |
| Self-Help Group-Bank Linkage Program | Credit for SHGs |
| Farm Sector Promotion Fund (FSPF) | Innovation in farming |
| Tribal Development Fund (TDF) | Tribal livelihood development |
🔹 Challenges in Agricultural Credit
1️⃣ Regional Disparities
- Credit disbursement heavily skewed towards western and southern states.
- Eastern and northeastern states remain underserved.
2️⃣ Financial Exclusion
- Marginal farmers, tenant farmers, and women farmers face difficulty in accessing formal credit due to lack of land titles and collateral.
3️⃣ High Indebtedness
- Many farmers rely on non-institutional sources (moneylenders), leading to debt traps.
- Despite institutional credit expansion, informal credit persists due to ease of access.
4️⃣ Misutilization of Credit
- Loans meant for agriculture are often diverted to consumption or social expenses (marriages, festivals).
5️⃣ Climate and Price Risks
- Farmers face uncertain returns due to climate shocks and price volatility.
- Credit-linked crop insurance penetration remains low.
🔹 Recent Reforms and Initiatives
| Initiative | Objective |
|---|---|
| Kisan Credit Card (KCC) | Flexible, hassle-free credit for farmers |
| Interest Subvention Scheme | Credit at subsidized rates (7%, with further incentives for timely repayment) |
| PM Kisan Samman Nidhi | Direct income support to farmers |
| Agri-Infra Fund | Financing for post-harvest infrastructure |
🔹 Digital Innovations in Rural Credit
1️⃣ Aadhaar-linked Credit Delivery – Faster KCC approvals.
2️⃣ Mobile Banking & Micro-ATMs – Improved rural banking access.
3️⃣ Digital Land Records – Enable collateral-free lending.
4️⃣ Agri-Tech Startups – Providing credit scores using satellite and weather data.
🔹 Case Study – Kisan Credit Card Success
- Launched in 1998.
- Provides working capital and investment credit.
- Flexible withdrawal and repayment linked to crop cycles.
- As of 2023, over 6 crore farmers hold active KCCs.
🔹 Key Statistics (2023)
| Indicator | Value |
|---|---|
| Agricultural Credit Target | ₹20 lakh crore |
| Institutional Credit Coverage | ~60% of farmers |
| KCC Accounts | 6+ crore |
| NABARD Refinance (2023) | ₹2.5 lakh crore |
📚 Practice MCQ
1️⃣ Consider the following statements regarding NABARD:
- It was established in 1991 during the economic reforms.
- It provides refinance to cooperative banks and RRBs.
- It supervises scheduled commercial banks.
- It manages the Rural Infrastructure Development Fund (RIDF).
Which of the above statements are correct?
✅ Options:
(a) 1 and 2 only
(b) 2 and 4 only
(c) 1, 2, and 4 only
(d) 2, 3, and 4 only
2️⃣ Which scheme aims at providing flexible, low-cost working capital to farmers?
✅ Options:
(a) PM-KISAN
(b) MGNREGA
(c) Kisan Credit Card
(d) PM Awas Yojana
3️⃣ Consider the following about Priority Sector Lending (PSL):
- It mandates banks to allocate a portion of credit to agriculture.
- Only public sector banks are covered under PSL.
- PSL also covers education, MSMEs, and renewable energy.
Which of the above statements are correct?
✅ Options:
(a) 1 and 2 only
(b) 1 and 3 only
(c) 2 and 3 only
(d) 1, 2, and 3
