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    7 Agricultural Finance

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    NEERAJA UNNI
    1. Agricultural finance is important for the development of agriculture as it allows farmers to purchase technical inputs. 2. Most farmers suffer from inadequate financial resources, forcing them to borrow from moneylenders who charge high interest rates. 3. Over time, cooperative banks and commercial banks have played larger roles in providing agricultural credit at reasonable interest rates.

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    7 Agricultural Finance

    Uploaded by

    NEERAJA UNNI
    361 views24 pages
    1. Agricultural finance is important for the development of agriculture as it allows farmers to purchase technical inputs. 2. Most farmers suffer from inadequate financial resources, forcing them to borrow from moneylenders who charge high interest rates. 3. Over time, cooperative banks and commercial banks have played larger roles in providing agricultural credit at reasonable interest rates.

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    1. Agricultural finance is important for the development of agriculture as it allows farmers to purchase technical inputs. 2. Most farmers suffer from inadequate financial resources, forcing them to borrow from moneylenders who charge high interest rates. 3. Over time, cooperative banks and commercial banks have played larger roles in providing agricultural credit at reasonable interest rates.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    361 views24 pages

    7 Agricultural Finance

    Uploaded by

    NEERAJA UNNI
    1. Agricultural finance is important for the development of agriculture as it allows farmers to purchase technical inputs. 2. Most farmers suffer from inadequate financial resources, forcing them to borrow from moneylenders who charge high interest rates. 3. Over time, cooperative banks and commercial banks have played larger roles in providing agricultural credit at reasonable interest rates.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 24

    AGRICULTURAL FINANCE:

    NATURE & SCOPE


    Finance

    • Broad term & describes two related activities


    – Study of how money is managed
    – The actual process of acquiring needed fund
    AGRICULTURAL FINANCE
    • Finance in agriculture is as important as
    development of technologies.
    • Technical inputs can be purchased & used by farmers
    only if sufficient money (funds) is available with
    farmers.
    • Most of the times farmers suffer from the problem of
    inadequate financial state.
    • This situation leads to borrowing from an easy &
    comfortable source
    Definition
    • means studying, examining & analyzing the financial
    aspects pertaining to farm business
    – financial aspects include money matters relating to prodn
    of agrl products & their disposal.
    • study of financing & liquidity services as well as
    credit provision to farm borrowers
    • Study of those financial intermediaries who provide
    loan funds to agriculture & the financial markets in
    which these intermediaries obtain their loanable
    funds.
    • Murray (1953) - an economic study of borrowing
    funds by farmers, the organization & operation of
    farm lending agencies & of society’s interest in credit
    for agriculture

    • Tandon & Dhondyal (1962) - as a branch of


    agricultural economics, which deals with the
    provision & management of bank services & financial
    resources related to individual farm units
    HISTORY OF FINANCING AGRICULTURE IN INDIA
    • Farmers suffered from the problem of inadequate
    financial state.
    • This situation lead to borrowing from an easy &
    comfortable source
    • Professional money lenders were the only source of
    credit to agriculture till 1935.
    • They used to charge unduly exorbitant interest rates &
    follow serious practices while giving loans & recovering
    them.
    • Farmers- heavily burdened with debts & many of them
    are left with perpetuated debts.
    • There were widespread discontents among farmers
    against these practices- instances of riots also
    • With the passing of RBI Act 1934- District Central
    Cooperative Banks & Land Development Banks-
    improvements in agricultural credit.
    • Large-scale credit -reasonable interest rates at easy
    terms, both in terms of granting loans & recovery of
    them
    • From 1930’s, Cooperative banks were playing a
    predominant role in financing agriculture
    • 1969- 14 major commercial banks were nationalized
    • After nationalization, it was made mandatory for these
    banks to provide finance to agriculture as a priority
    sector.
    • The procedures & amount of loans for various
    purposes have been standardized.
    Nature & Scope of AF
    • studied at both micro & macro level.
    Micro Macro

    • FM of an individual farm • different sources of raising


    units funds for agriculture as a
    • how the ind farmer whole in the economy.
    considers various sources of • also concerned with the
    credit, quantum of credit to lending procedure, rules,
    be borrowed from each regulations, monitoring &
    source & how he allocates controlling of different
    the same among the agricultural credit
    alternative uses with in the institutions
    farm • related to financing of
    agriculture at aggregate
    level.
    SIGNIFICANCE OF AGRICULTURAL FINANCE
    1. Essential & significant in the agro– socioeconomic growth of
    the country.
    2. Plays a catalytic role in strengthening the farm business &
    augmenting the productivity of scarce resources.
    3. Helps in purchase & use of new technological inputs - helps to
    increase the agricultural productivity.
    4. Increase farm income.
    5. AF is required to create the supporting infrastructure for
    acceptance of new technology.
    6. Agricultural investment is wanted to carry out micro & macro
    irrigation projects, rural electrification, installation of compost
    & pesticide plants, execution of agricultural promotional
    programmes & poverty alleviation programmes in the country.
    Sources of Agricultural Finance

    Non- Institutional
    institutional

    - Moneylenders - Cooperatives
    - Friends/ Relatives - Scheduled Commercial
    - Traders Banks
    - Commission agents - Regional Rural Banks (RRBs)
    - Landlords
    AGRICULTURAL CREDIT
    • Loan
    • Credit / loan is certain amount of money provided
    for certain purpose on certain conditions with some
    interest, which can be repaid sooner (or) later.
    • “ability to borrow” & “willingness to borrow” - ability
    to command other peoples’ capital in return for a
    promise to repay at some specified time in future.
    • It can also be regarded as an economic good to be
    produced, managed & marketed.
    Need for Agricultural Credit

    1. Purchase of new inputs


    2. Purchase of implements
    3. Better management of risk
    4. Permanent improvement in land
    5. Better marketing of crops
    6. Facing crises
    7. Balanced development
    CLASSIFICATION OF CREDIT

    1. On the basis of time


    a) Short-Term
    • generally advanced for meeting annual recurring
    purchases such as, seed, feed, fertilizers, hired
    labour expenses, pesticides, weedicides & hired
    machinery charges
    • seasonal loans/crop loans/production loans
    • These are expected to be repaid after the harvest
    • Repayment- 1 year or at the most 18 months.
    b) Medium-term loans
    • advanced for moderately longer lived assets such as
    machinery, diesel engine, wells, irrigation structure,
    threshers, shelters, crushers, draught & milch animals,
    dairy/poultry sheds, etc.,
    • Done for improvements in field- returns accumulate from
    spread in farm assets increase over more than one
    production period.
    • Repayment - 15 months to 5 years
    c) Long-term loans
    • heavy machinery, land & its reclamation, erecting of farm
    buildings, construction of permanent drainage or
    irrigation system
    • Repayment - 5 to 15 years or even upto 20 years.
    II. Based on Purpose
    i. Production loans/ Crop loans
    ii. Investment loans
    iii. Marketing loans
    iv. Consumption loans

    III. Lender classification


    a) Institutional Credit
    b) Non-Institutional Credit
    IV. Based on Security
    a) Secured loans- against the security of tangible
    personal property - land, livestock & other capital
    assets, i.e., medium & long term loans.
    – Personal security- promissory note
    – Collateral Security – movable property- LIC bonds, FD
    bonds, warehouse receipts, machinery, livestock
    – Chattel loans- pawn-brokers – jewelry
    – Mortgage- immovable properties - land, farm buildings-
    mortgagor (borrower) & mortgagee (banker)
    - Simple & equitable mortgage
    – Hypothecated loans- legal ownership of the asset financed
    remains with the lender despite physical possession being
    with the borrowers- tractor, machinery & equipments.
    b) Unsecured loan- short-term crop loans
    V. Based on borrower
    • production or business activity as well as size of
    business) such as crop farmers, dairy farmers,
    poultry farmers, fisherman, rural artisans etc. or
    • agricultural labourers,
    • marginal/small/ medium/large farmers, hill farmers
    or tribal farmers etc.
    VI. Based on liquidity

    a) Self-liquidating loans: They generate income


    immediately & are to be paid within one year or
    after the completion of one crop season. Ex: crop
    loans.
    b) Partially -liquidating: They will take some time to
    generate income & can be repaid in 2-5 years or
    more, based on the economic activity for which the
    loan was taken. Ex: Dairy loans, tractor loans,
    orchard loans etc.
    VIII. Based on contact

    a) Direct Loans: Loans extended to the farmers


    directly - Crop loans.
    b) Indirect loans: Loans given to the agro-based firms
    like fertilizer & pesticide industries, which are
    indirectly beneficial to the farmers
    VIII. Based on approach

    a) Individual approach
    b) Area approach
    c) DRI approach- 1972 to financially assist chosen low
    income groups
    5 C’s of Credit
    1) Character
    • include borrower’s moral qualities like honesty,
    integrity, sense of responsibility and trust
    worthiness.
    • If a person has been borrowing the loan and also
    timely repaying the debt, it reflects that he possesses
    ideal credit character and vice-versa.
    • Therefore both mental and moral character of the
    borrowers will be examined while advancing a loan.
    • Generally people with good mental and moral
    character will have good credit character as well.
    2. Capacity:
    • It means capacity of an individual borrower to repay
    the loans when they fall due.
    • It largely depends upon the income obtained from
    the farm.
    3. Capital:
    • Capital indicates the availability of money with the
    farmer - borrower.
    • When his capacity and character are proved to be
    inadequate, the capital will be considered.
    • It represents the net worth of the farmer.
    • It is related to the repayment capacity and risk
    bearing ability of the farmer - borrower.
    4. Condition:
    • It refers to the conditions needed for obtaining loan
    from financial institutions i.e. procedure to be
    followed while advancing a loan.
    5. Commonsense:
    • This relates to the perfect understanding between
    the lender and the borrower in credit transactions.
    • This is in fact prima-facie requirement in obtaining
    credit by the borrower.
    7 Ps of farm credit/ principles of farm
    finance

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