Rural Credit

What is Rural Credit in India?

Rural economy growth generally depends on the funds, from one interval to another interval, to understand high-rise productivity in non-agriculture and agriculture areas. The interval gap from sowing the seed to the understanding of post-production revenue is comparatively long, the farmers lend money from different fronts to match the primary investment on fertilizers, seeds, tools, and other personal expenses.

Post-independence, traders and moneylenders took advantages of poor peasants and landless workers by lending money to them on huge-interest rates and also influencing their accounts and trap them.

In the year 1969, India started social banking and different agencies who could provide funds to satisfy the requirements of rural credit. Later in the year 1982, National Bank for Agriculture and Rural Development (NABARD) was formed as an apex body to regulate and organize all the financial activities concerning rural financial system. This becomes more concrete when the Green Revolution came into begin and changed the credit system of the country, resulting in a productive lead of rural credit.

Today, rural banking includes a set of various financial institutions, particularly, regional rural banks (RRBs), cooperatives, commercial banks, Self-Help group, and land development banks. They assign sufficient credit at cheaper interest rates.

Types of Rural Credit

The rural credit is divided into three types of credit.

  • Short Term Loan/Credit- A short term loan is one kind of rural credit that is taken to hold a brief private or business capital requirement. It is that type of credit, that requires a borrowed principal amount and interest percentage to be repaid at a given date, the course of which may be maximum up to one year. A short term loan is a worthy but expensive option, particularly for small companies or basically for start-ups who are still not qualified for a credit line from a bank.
  • Medium-term Loan/Credit- Medium-term loans are the loans that have a repayment duration between two to five years or less than 10 years. Medium-term loans are an excellent option for small firms who are looking for a traditional way of credit with a set repayment duration and anticipated amounts. The loan amount an individual receive may differ based on cash flow, credit rating, and various other factors.
  • Long term Loan/Credit- The repayment duration of the long-term loan is usually 5 to 20 years or even more in a few exceptional cases. In any business, long-term finance is essential, to create permanent assets that will return over a period of time. Especially in the Agriculture sector, long-term investment comprises of land levelling, fencing, sinking well, permanent repairs on land, acquisition of heavy machinery such as tractor, etc. All the long-term investments suggested above need large numbers of funds. Although they have considerable potential to give profits in the future, private farmers do not have their own money to make such costly investments because either they have no savings or have very little savings.

Rural Credit is needed for the following reasons:

(1) Long Gestation Period

  • Gestation period between the sowing of crop and understanding of income after agricultural produce and sale is very long.
  • Therefore the farmer needs to take credit.

(2) To Buy Inputs

  • Farmers need money to buy seeds, fertilizers, tools etc.

(3) Personal Expenses

  • They need money for personal expenses like marriage, death, religious ceremonies, to repay old-debts etc.

Do you know: What are the Economic Challenges in India?

Multiple Choice Question:
Q.1 ___________credit are taken for purchasing machinery, constructing fences and digging wells.
a. Short-term credit

b. Medium-term credit

c. Long –term credit

d. None of the above

Q.2- Due to which of the following reasons rural credit is needed?
a. Long Gestation period

b. To buy inputs

c. Personal Expenses

d. All of the above

Q.3- _______ is taken for the period of between 5 to 20 years.
a. Short-term credit

b. Medium-term credit

c. Long –term credit

d. None of the above

Answer Key
1-b, 2-d, 3-c

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