Rural Credit

Rural Credit in India

Rural economy growth generally depends on the funds from one interval to another to understand the high-rise productivity in non-agriculture and agriculture areas. The interval gap from sowing seeds to understanding the post-production revenue is comparatively long.

Farmers lend money from different fronts to match the primary investment on fertilisers, seeds, tools, and other personal expenses.

Post independence, traders and moneylenders took advantage of poor peasants and landless workers by lending money to them at huge interest rates and also influencing their accounts and trapping 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 organise all the financial activities concerning the rural financial system.

This became more concrete when the Green Revolution came 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 groups, and land development banks. They assign sufficient credit at cheaper interest rates.

Types of Rural Credits

There are three types of rural credits:

Short-term loan/credit: A short-term loan is one kind of rural credit that is taken for a brief private or business capital requirement. It is a 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 an expensive option, particularly for small companies or basically for startups that are still not qualified for a credit line from a bank.

Medium-term loan/credit: A medium-term loan is the loan that has a repayment duration between 2 to 5 years or less than 10 years. Medium-term loans are an excellent option for small firms that are looking for a traditional way of credit with a set repayment duration and anticipated amounts.

The loan amount an individual receives may differ based on the cash flow, credit rating, and various other factors.

Long-term loan/credit: The repayment duration of a 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 land levelling, fencing, sinking wells, permanent repairs on land, acquisition of heavy machinery such as tractors, etc. All the suggested long-term investments need large numbers of funds.

Although they have a considerable potential to give profits in the future, private farmers do not have the money to make such costly investments as they either have no savings or have very little savings.

Rural Credit is needed for the following reasons:

(1) Long gestation period

  • The gestation period between sowing crops and understanding income after the agricultural produce and sale is very long.
  • Therefore, the farmers need to take credit.

(2) To buy inputs

  • Farmers need money to buy seeds, fertilisers, 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 Questions
Q.1 ___________credits are taken for purchasing machinery, constructing fences, and digging wells.
a. Short-term

b. Medium-term

c. Long-term

d. None of the above

Q.2 Due to which of the following reasons is the rural credit 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 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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