Agricultural finance & its challenges in India

What is Agriculture Finance?

As the name suggests, provision of loans to farmers in rural areas for both direct and indirect expenses of Agriculture. It can be for buying fertilizers for fields or expand livestock. Until 1934 the only source of Agriculture finance is private money lenders in respective regions. Reserve Bank of India introduced District/Central Co–Op Banks and Land Development Bank Act in 1934. The result of the banking regulations on rural farmers is almost nil. The need of agriculture finance in India is ~B 450 USD but lack of awareness and inadequate banking policies from banks and MFI making even tough for farmers. Agriculture finance can be provided to farmers on basis of Time, on purpose and farmer can acquire a loan and traditional and non-traditional ways let discuss more on types or Finance and Purpose of loans.

According to World Bank estimates, demand for food will increase by 70% by 2050, and at least $80 billion annually in investments will be needed to meet this demand, most of which is expected to come from the private sector. World Bank Records

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Need of agriculture loans can be for Productive and Unproductive

Productive Loans: Loans that are given to farmers to cultivate crops on their fields and money which is spent on direct ways in farming.
Unproductive Loans: Loans that are offered to farmers to celebrate their family rituals, marriages with their lands as a collateral.
Both Productive and Unproductive loans will be provided to farmer based on specific time limits.

Time Based Loans:

1. Short Term Loans: Loans offered to farmers from 3 to 15 months to meet their cultivation needs like paying wages, fertilizers, marketing mainly for productive purpose Loans.
2. Mid-Term Loans: These loans are ranging from 15 months to 5 years, like buying cattle and improving land for long term farms.
3. Long Term Loans: Long-term loans are focused for more than 5 years this also includes buying new lands and bonds issued by NABARD and purchasing machinery that supports agriculture.

Source of Agriculture Finance:

We would like to discuss more in this area, doing case study “Merits and Demerits of Crowdfunding on Agriculture Finance”

1. Institutional:
   a. Co-Operate Banks
   b. Public Sector Banks
   c. Land Development Banks
   d. NABARD

2. Non -Institutional
   a. Private Money Lenders
   b. Landlords

Conclusion:

People have a mindset that agriculture is not a profitable business anymore. Due to risky nature of agriculture, the availability of financial services to farmers are very less. Microfinance institutes and Banks consider that the returns they get on this business are very less when it compared to other business. Farmers are choosing the traditional alternative which is money lenders, in many cases, farmers cannot repay the loans as the rate of interest is very high.

In fact, farming is not a business its way of life that we need to teach our newer generations. We can buy food in shopping malls and stores or anyplace we want only because far away from our city glitters farmers are producing food for us.