5.3.1 Definition and Importance of Rural Credit
Rural credit refers to financial support provided to farming families. Farmers require funds for various purposes such as acquiring land, purchasing tools, fertilizers, seeds, and addressing personal needs like marriages and ceremonies. Due to the extended period between crop sowing and income realization, farmers often need credit.
The absence of timely and proper agricultural credit is a significant factor contributing to the underdevelopment of Indian agriculture. Farmers necessitate credit for long-term investments like tractors and land, medium-term needs such as well-digging, and short-term requirements like buying seeds and tools.
5.3.2 Sources of Rural Credit
Before independence, farmers faced exploitation from private traders during the sale of their produce, leading to faulty weighing and manipulation of accounts. To counter this, social banking and a multi-agency approach were adopted in 1969. Rural credit sources can be classified into two groups: non-institutional sources (informal sector) and institutional sources (formal sector).
I. Non-institutional Sources or Informal Sector:
Moneylenders: Historically significant but with negative impacts, they exploit labor, charge high interest, acquire land on default, and manipulate accounts.
II. Institutional Sources or Formal Sector:
Co-operative Credit Societies: Operating at the village level, providing short-term credit, and linked to Central Co-operative Banks at the district level.
Land Development Banks: Catering to long-term credit needs, also known as Land Mortgage Banks, supporting diverse productive purposes.
Commercial Banks: Providing direct and indirect advances for short, medium, and long-term agricultural operations. However, they face challenges such as high operational costs and a lack of initiative in rural branches.
Regional Rural Banks (RRBs): Established in 1976 to cater to areas lacking banking and cooperative facilities. Despite successes, RRBs face challenges like continuous losses and regional disparities.
National Bank for Agriculture and Rural Development (NABARD): Established in 1982, it plays a crucial role in providing credit support, coordinating activities, inspecting institutions, promoting research, and acting as a refinancing agency.
Self-Help Groups (SHGs) and Micro Credit Programs:SHGs and micro credit programs encourage thrift among rural households. They operate by pooling small contributions from members to fulfill credit needs without requiring collateral.
Current Status and Challenges: The latest status of agricultural credit includes initiatives like the Kisan Credit Card (KCC) Scheme and the Agricultural Debt Waiver and Debt Relief Scheme. However, challenges persist, such as inadequate institutional finance, regional inequalities, and high default rates.
5.3.3 Evaluation of Rural Banking
Since the nationalization of commercial banks in 1969, rural banking has expanded significantly. This expansion has positively impacted farm and non-farm output, provided long-term loans, generated credit for self-employment schemes, and contributed to achieving food security. However, limitations exist, including inadequate institutional finance, regional inequalities, high default rates, and limited access for small and marginal farmers.
Solutions to Agricultural Credit Challenges: Solutions involve extending credit facilities on favorable terms, strengthening cooperative credit societies, implementing effective mechanisms for loan recovery, and establishing more Regional Rural Banks to address the credit needs of rural and backward areas.
Objective Type Questions
1. What does rural credit refer to?
A. Urban financial support
B. Financial aid for farming families
C. Industrial investment funds
D. International banking initiatives
Answer: B. Financial aid for farming families
2. Why do farmers often need credit in rural areas?
A. To invest in urban infrastructure
B. To address personal needs only
C. Due to the extended period between crop sowing and income realization
D. Because of excessive reliance on technology
Answer: C. Due to the extended period between crop sowing and income realization
3. What is a significant factor contributing to the underdevelopment of Indian agriculture according to the passage?
A. Lack of skilled farmers
B. Timely and proper agricultural credit
C. Overreliance on moneylenders
D. Shortage of modern equipment
Answer: B. Timely and proper agricultural credit
4. Which sector faced exploitation by private traders before independence, leading to the adoption of social banking in 1969?
A. Industrial sector
B. Agricultural sector
C. Service sector
D. Educational sector
Answer: B. Agricultural sector
5. Who were significant non-institutional sources of rural credit in the informal sector?
A. Farmers
B. Moneylenders
C. Government agencies
D. Cooperative societies
Answer: B. Moneylenders
6. What role do Co-operative Credit Societies play in rural credit?
A. Long-term credit providers
B. Short-term credit providers
C. Land developers
D. Seed suppliers
Answer: B. Short-term credit providers
7.Which institution supports diverse productive purposes and caters to long-term credit needs in rural areas?
A. Commercial Banks
B. Co-operative Credit Societies
C. National Bank for Agriculture and Rural Development (NABARD)
D. Land Development Banks
Answer: D. Land Development Banks
8. What was the primary motive behind the establishment of Regional Rural Banks (RRBs) in 1976?
A. Urban development
B. Industrial expansion
C. Catering to areas lacking banking and cooperative facilities
D. Enhancing international trade
Answer: C. Catering to areas lacking banking and cooperative facilities
9. When was the National Bank for Agriculture and Rural Development (NABARD) established?
A. 1969
B. 1976
C. 1982
D. 1999
Answer: C. 1982
10. What do Self-Help Groups (SHGs) and Micro Credit Programs aim to promote among rural households?
A. High-interest savings
B. Large-scale investments
C. Thrift (saving habit)
D. International banking practices
Answer: C. Thrift (saving habit)