undefined | unit 2 agricultural finance

UNIT-II

AGRICULTURAL FINANCE

Q1) What do you mean by Institutional financial sources, their types?

Ans:

Financial institution: An institution which provides monetary services and engaged in monetary transactions (loans, investment, currency exchange and deposits) to needy people.

Types of Financial Institution:

1) Investment bank

2) Commercial bank

3) Brokerages

4) Investment companies

1)Investment bank: These banks don’t keep deposit, they help individual, farmers, companies and Government to raise fund through issuing securities.

2)Commercial bank: Very important and common type of institutional source of finance. Some of the common commercial banks are Central bank, state bank, punjab national bank etc. These banks provide facilities of new government policy which are associated with banks.

3)Brokerages: It is the financial intermediate between buyer and seller to provide facility of secure transaction.

4)Investment companies: These are also bear loss by collection of money, as people use these companies to bear losses of unfortunate death, accidents, fire, health issues etc.

Q2) What are advantages and limitations of Institutional financial sources?

Ans:

Advantages of Institutional financial sources:

Secure than non institutional financial sources

They cannot charge exorbitant rate of interest.

They provide underwriting facilities.

Their repayment facilities are easy and economical.

Finance is accessible even in periods of depression, once no alternative supply of finance is accessible within the market.

Besides providing funds, several of those establishments give monetary, social control and technical recommendation and practice to business companies.

For semi-permanent business fund’s needs, monetary establishment’s area unit desirable as they supply semi-permanent finance, that isn't provided by industrial banks.

Limitations of economic establishment:

Restriction on dividend payment obligatory on the powers of the borrowing company by the monetary establishments.

As these establishments return below government criteria, they follow rigid rules for granting loans. Too several formalities build the procedure long

It has their nominees on the Board of administrators of the borrowing company thereby proscribing the powers of the corporate.

Q3) Explain functions of NABARD.

Ans:

National Bank for Agricultural and Rural Development (NABARD)

Established: 12 july 1988

Headquarter: Mumbai (Maharashtra)

Chairperson: Harshkumar Bhanwala

Function:

It provides production of credit and investment for promoting various developmental activities in rural areas;

It undertakes evaluations and monitoring of projects refinanced by it.

It gives higher priority to projects formed under Integrated Rural Development Programme (IRDP).

It arranges refinance for IRDP accounts, to give highest share for the support for poverty alleviation programs run by Integrated Rural Development Programme.

It gives guidelines for promotion of group activities, to provides 100% refinance support for them.

It is setting linkages between Self-help Group (SHG) in different States which are organized for poor and needy in rural areas.

It refinances projects which are operated under the ‘National Mission of Wasteland Development‘ and National Watershed Development Programme‘.

It also a system of District Oriented Monitoring Studies, under which, study is organized for a cross section of schemes that are sanctioned in a district to various banks.

It supports “Vikas Vahini” volunteer programs which offer credit facilities and development activities to poor farmers.

It also recommends about licensing for RRBs and Cooperative banks to RBI.

It gives assistance for the development and training of the staff of various other credit institutions which are engaged in credit distributions.

It runs programs for agriculture and rural development in the whole country.

Q4) Mention some financial institutions.

Ans:

Some financial institutions are:

1. Industrial Finance Corporation of India (IFCI)

IFCI came upon as a statutory organization below the commercial Finance Corporation Act 1948. Its main objectives were to produce facilitate towards supporting the native advancement and urging new business visionaries to travel into the imperative and necessary sectors of the economy.

2. State monetary companies (SFC)

The State monetary companies Act, 1951 created the State Governments build up State monetary companies in their specific area unites for giving medium and short funds to businesses that are outside the extent of the IFCI.

3. Industrial Credit and Investment Corporation of India (ICICI)

This foundation shaped in 1955 as a public organization below the businesses Act. ICICI helps the creation, development and modernization of business endeavors exclusively within the personal sector.

4. Industrial Development Bank of India (IDBI).

In 1964, it had been came upon below the commercial Development Bank of India Act, 1964 with a target to facilitate the operating of alternative monetary establishments together with industrial banks.

5. Industrial Investment Bank of India Ltd.

It was came upon as a vital establishment for the restoration of sick units and was referred to as Industrial Reconstruction Corporation of India

Q5) What is the importance of Institutional finance.

Ans:

Importance of Institutional finance:

• Financial Institution provides kinds of Financial services to their customer as well as to the companies in need of fund.

• They provide higher rate of returns to investor.

• Directly promotes investment and help investor to understand the risk and market strategy.

• Helps in maintenance of liquidity of stocks.

• Maintains cashflow in market and helps in rotation of money.

• Helps in upliftment of economy.

• Assist with transferring of money from investor (individual and companies) to the companies in need of money.

Financial Institution helps to funnel funds to most of the successful business which helps them grow and helps them to increase their supply. In this way Financial Institution contributes in efficient allocation of economical resources, which is essential for the development of a country.

Financial Institution plays an important role by providing funds and by helping in expansion of economy through directing funds from savers to borrowers.

Q6) Mention some traditional sources of finance.

Ans:

Non-Institutional Financial sources (Traditional sources):

Establishment of Institutions like Reserve bank of India (1935), National bank for

Agriculture and rural development (NABARD, 1982), State bank of India (SBI ,1955), and Nationalization of 14 largest banks in 1969 and 6 more banks in 1980 were enough to make people aware about credit and loan facilities in India. This slightly led to decline in source of credit from non-Institutional Financial sources in Post independence era.

Sources of Agricultural credit can also be non-Institutional including. Traders and commission agents, Moneylenders, Relatives and Landlords.

1) Traders and Commission Agents: Those who Advances loan to farmers and Agriculturist for production motives. They usually advance loan before the maturity period of crops and after harvesting creditors, they force farmers to sell their crops at lower price in comparison to market price and also charges heavy commission. This type of loan is mostly advanced for cash crops.

2) Moneylenders: There are two types of Moneylenders-

a) Agricultural Moneylenders

b) Professional Moneylenders

Moneylenders supplied major portion of Agricultural credit and also charged exorbitant rate if interest on loans (often 24% or more)

Share of moneylenders in Farm credit

Year	Percentage of share
1951-52	69.7%
1971-72	36.1%
1981-82	16.1%
1995-96	7.0%

Share of moneylenders in overall farm credit has declined

3)Relatives: Farmers mostly borrowing funds from their relatives in time of crisis. These are kinds of informal loans and charges no interest.

Share of relatives in Agricultural credit

Year	Percentage of share
1951-52	14.2%
1981-82	8.7%
1995-96	3.0%

This source of fund credit has also declined in post independence era.

4)Landlords: In pre independence era, landlords were most important source of credit, from whom small as well as marginal farmers and even tenants took loans.

Share of landlords in Agricultural credit

Year	Percentage of share
1951-52	3.3%
1961-62	14.5%
1981-82	18.8%
1995-96	10.0%

This source has been most dynamic and fluctuating source, which changed according to the economic conditions.

Q7) Explain importance of microfinance for snail farmers /marginal farmers.

Ans:

Importance of microfinance for snail farmers, marginal farmers:

Microfinance: Banking service which provides easy access of small loans to unemployed, low income individual and street vendors.

Marginal farmers: Small farmers who cultivates Agricultural land upto 2.5 acres (1 hectare)

Supply of Financial services to farmers is still limited. These days main causes of farmer’s suicide are high debt. Since these farmers don’t have proper information and protection any laws, they loose their lands in debt and pass on their liability to helpless children which result in increase of poverty, unemployment, illiteracy, malnutrition etc.

Only way to empower farmers in India is to provide a source of farming finance which is easy and affordable. Microfinance fulfills farmers finance requirement. It also bridges gap between distribution with acceptance of credit.

It also prevents exploitation of farmers and extortion of excess interest from farmers by non-institutional finance sources (landlords, moneylenders, amr traders).

It provides service of stress free and easy repayment of loan through installments and at lesser rate of interests. It helps small farmers to adopt Agricultural technology by purchasing heavy machinery and implements which make farmer’s work easy and time saving.

It provides funds to farmers to buy improved seeds and fertilizer. It acts as a safety net to help farmers to cope up with risk in Agricultural production.

Participation in Microfinance groups leads to encourage farmer to share information about new farming technology.

Q8) Explain the following terms:

Financial institution.

NABARD

Kisan credit scheme

Microfinance

Marginal farmer

Ans:

Financial institution: An institution which provides monetary services and engaged in monetary transactions (loans, investment, currency exchange and deposits) to needy people.

National Bank for Agricultural and Rural Development (NABARD)

Established: 12 july 1988

Headquarter: Mumbai (Maharshtra)

Chairperson: Harshkumar Bhanwala

Function:

Serve as an apex funding agency for rural areas.

Takes measures to improve credit delivery system

Coordinates the rural financing activities of all credit institution.

Monitors projects refinanced by it.

Kisan Credit scheme:

It as at timely and adequate support to farmers for short term credit needs.

Under this scheme, banks issue credit card to farmers who are eligible for credit for allied activities, crop production and non-farming activities.

Microfinance: Banking service which provides easy access of small loans to unemployed, low income individual and street vendors.

Marginal farmers: Small farmers who cultivates Agricultural land upto 2.5 acres (1 hectare)

Q9) What is the role of NABARD?

Ans)

Following are the roles of NABARD:

1. An apex institution with power to deal with matters of planning and operations in providing credit facilities for agriculture and other economic activities in the rural areas.

2. Act as a refinancing agency for institutions like regional rural bank that provide production of credit and investment for promotion of developmental programs for rural development.

3. It contributes in improvement of absorptive capacity of the credit delivery system in India, including formulation of rehabilitation schemes, restructuring of credit institutions, monitoring and training of personnel.

4. It act as coordinator of rural credit financing activities of institutions engaged in developmental work at the field level while maintaining liaison with Reserve Bank of India, Government of India, and State Governments, and other national level institutions that are concerned with policy formulation.

5. It prepares plans for rural credit, annually, for all districts in the country.

6. It promotes various research in, the field of agriculture, rural banking and rural development.

Q10) What are the credit facilities for farmers? Write problems regarding agriculture credit in India and their preventions.

Ans:

Agricultural credit in India:

Agricultural credit is an important and basic input for organizing Agricultural development programme In India, there is a lot need of agricultural credit as Indian farmers have lack of credit and credit facilities, their condition is very bad and exploitative.

Post independence, government adopted many schemes to inject in Agricultural credit. Through, these schemes govt. Provided easy access to credit facilities and at cheaper rate to needy farmers. During post green revolution period, need of credit has increased.

Credit facilities to farmers:

1)Kisan credit scheme-It as at timely and adequate support to farmers for short term credit needs.

Under this scheme, banks issue credit card to farmers who are eligible for credit for allied activities, crop production and non-farming activities.

2)Investment loan: various loan facilities are available for investment purposes for Irrigation, land development, post, harvest management, Agricultural mechanization, horticulture and plantation.

3)Interest subvention scheme: It provides short term credit at subsidized interest rate. It is being implementer for tears 2018-19. It is given to public and private sector banks ,RRB's and co-operative bank , to NABARD to refinance RRB's. This scheme is implemented by RBI and NABARD.

Problems regarding Agricultural finance in India:

Red tapism: Financial institutions adopts rigid procedure with submission of lots of documents and formalities for advancing loan to farmer. This problem makes farmer more depending on non-institutional finance sources, who charges exorbitant rate.

Inadequate institutional coverage: Inadequacy of Institutional credit arrangements is a huge problem. Many of rural farmer are not getting covered, even after development of financial institution like commercial banks, RRB's, land development banks etc.

Less attention to poor farmers: Poor and actual needy farmers, are getting lesser attention than well doing farmers.

Inadequate amount of sanction: Amount sanctioned to farmers is inadequate to meet their Agricultural expenses.

Collateral: Most of the financial institutions asks for security to grant loan, and poor farmers don’t have securities (like jewellary, land, or any other costly item), so they are unable to keep security and to get loan.

Insufficiency: Volume of agricultural finance has been constant since decades, there is no or little rise recorded in Agricultural credit despite of various initiative taken by government.

Preventions:

Loan offered by the Government should be monitored properly in a serious manner.

Co-operative credit societies should be promoted to make it efficient and purposeful for delivering the best in terms of rural credit.

Middlemen or intermediaries that exists between borrowers and credit agencies should be eliminated.

RBI should arrange more fund so that long term loans can be advanced to the needy farmers.

Power and activities of moneylenders, landlords, mahajans and non-institutional sources should be checked to prevent exploitation of farmers.

The banks should adopt simple process for credit delivery.

Check on fraud practices adopted by the farmer, for getting loans from different agencies by showing same tangible security, a credit card should be issued.

Actual utilization of loans should be checked by developing an effective supervisory mechanism.

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