Source of rural finance

Agriculture is the primary source of income of individuals residing in the rural regions across India. Every year, farmers and peasants need to invest a considerable amount of funds to ensure a healthy harvest. Thus, they often resort to borrowing money from moneylenders and financial institutions to fulfill their basic needs before harvest season arrives, and they can earn money by selling their crops.


Thus, any loan taken for agricultural purposes or small home businesses across the rural areas in India is known as a Rural Credit.


Sources of Rural Credit 

Below are the five major sources for Rural Credit in India:-


1. Land Development Banks 

These banks provide a considerable sum of money as a credit to farmers by using their land as collateral. This low-interest loan has a repayment tenure ranging between 15 and 20 years. Farmers are free to avail this loan to bear the cost of land development work, including the creation of wells or other irrigation related facilities.


Still, land development credits are underutilized since most farmers remain unaware of this source of funding.  


2. Co-operative Credit Societies

One of the most economical sources of funding for farmers, co-operative credit facilitates credit to small- and medium-scale farmers. These short-term credits are extended by Primary Agricultural Credit societies or PACs. Nonetheless, these societies have not been able to minimize the influence of moneylenders on the Rural Credit market.


3. Regional Rural Banks

Set up by the government, regional rural banks or RRBs extend monetary assistance to marginal farmers, landless laborers and artisans.


4. Commercial Banks

Originally, commercial banks were reluctant to provide credit for agriculture due to the risks involved with such a move. However, today, these banks extend monetary help both directly and indirectly, to farmers. Direct investment in agriculture refers to short and medium term loans to simplify farming activities. Indirect investment, on the other hand, refers to the advances to farmers made through intermediary agencies or institutions.


5. Government

These are short-term credits extended by the Indian government to assist struggling farmers, especially in the aftermath of natural calamities, such as floods and droughts.

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