Agriculture credit is a catalyst for agricultural growth; it helps farmers to use optimum quantity of resources and facilitates the adoption of modern technologies.
Credit through formal financial institutions like commercial banks and cooperatives are made available to farmers at concessional rate of interest and favourable terms. Formal credit to agriculture is going to be important for realising honourable prime minister’s dream of ‘Atmanirbhar Bharat’ and increasing the target for agricultural credit from 15 lakh crore to 16.5 lakh crore rupees is a step in right direction. However, more needs to be done to ensure that credit reaches to the farmers who needs it the most.
Literature on agricultural credit has highlighted that certain section of farmers have difficulty in access to formal financial institutions and still depends on informal agents like money lenders as a source of credit. Many research papers have pointed out that formal financing institutes cater only to farmers who belong to higher socio-economic strata (Kumar et al 2020, Aditya et al 2019).
Lack of bankable securities, lack of awareness, higher transaction cost, illiteracy and tenancy are the possible bottlenecks for accessing formal credit. Informal sources often offer credit with minimal paperwork but charges exorbitant interest rates.
We need innovations in credit delivery to make it easy for farmers to access credit and to reduce the transaction cost. One such innovation is Kisan Credit Card (KCC)- launched in 1998 as a multipurpose credit card for farmers. The unique feature of this card is that it offers crop loan, investment loan and consumption loan in a single window mode, once sanctioned it will be valid for a period of 3 to 5 years and offers flexible option for farmers with no need of additional documentation in the subsequent years.
Recently, the facility of KCC has been extended to fisheries and livestock farmers to meet the working capital needs. Our study in eastern India found that the farmers who have access to KCC spend more on fertilizers and inputs, earn better income and reduces the dependence on money lender by 25 percent (Kumar et al 2021). In spite of considerable progress, only 46% of the farmers have a KCC.
Further, as in case with formal credit in general, smaller and marginal farmers are less likely to have a KCC. Steps should be taken to make KCC more accessible and equitable. Another important step is to expand the reach of banks. In our research we found that the distance from bank has an inverse relationship with access to formal credit (Aditya et al, 2019).
Bank expansion in rural areas, easing the procedures for obtaining the loan can go a long way in fuelling agricultural growth. Creating awareness about the benefits of KCC, Interest subvention schemes, Jan-Dhan accounts etc is also needed for bringing financial inclusion in the farming sector.
Note: The views expressed are of authors alone and do not represent the views of the institute they represent.
- Mr. Aditya K S is a Scientist at the Division of Agricultural Economics, ICAR-New Delhi. Mr. Aditya is an Agricultural Economist who works in the area of agricultural policy analysis. Contact: firstname.lastname@example.org
- Dr. Girish Kumar Jha is a Principal Scientist at the Division of Agricultural Economics, ICAR-New Delhi. Dr. Jha is an Agricultural Statistician by training and is a BOYSCAST Fellow (Canada) & NEWS Fellow (UK). Contact: email@example.com