AEC 302 DEVA DHARSHINI S 2017042104.pptx
- 1. AEC 302 AGRICULTURAL FINANCE AND CO- OPERATION TOPIC: AGRICULTURAL CREDIT, MEANING, DEFINITION, NEED, AND CLASSIFICATION SUBMITTED BY DEVA DHARSHINI S 2017042104
- 2. AGRICULTURAL CREDIT THE CREDIT NEEDED BY FARMERS TO GROW THE AGRICULTURAL SECTOR IS TERMED AS AGRICULTURAL CREDIT. CREDIT IS REQUIRED IN EVERY TYPE OF BUSINESS AND AGRICULTURE IS NOT EXCEPTION TO IT. THENEED FOR AGRICULTURAL CREDIT, HOWEVER, BECOMES ALL THE MORE IMPORTANT WHEN IT MOVES FROM TRADITIONAL AGRICULTURE TO MODERN AGRICULTURE.
- 3. NEED FOR AGRICULTURAL CREDIT: The following points reveals the need for agricultural credit. 1.Purchase of new inputs:The farmers need finance for the purchase of new inputs which include seeds, fertilizers, pesticides etc. if the seeds of high yielding varieties and other modern inputs are made available to the farmers, they can increase productivity not only of the land but also of labour. 2.Purchase of Implements:Credit is required by the farmers for the purchase water pumping sets, tractors, threshers, etc. the use of appropriate machinery in land will increase production by growing more than one crop on the same piece of land at the same time.
- 4. 3.Better Management of Risk: Credit enables the farmers to better to manage the risk of uncertainties of price. they can borrow money during bad years and pay back the loans during good years of crops. 4.Permanent Improvement in Land: Credit also helps the farmers to make permanent improvements in land like sinking of wells, land reclamation, etc. 5.Better marketing of Products: if timely credit is available to the farmers, they will not sell the produce immediately after the harvest is over. At that time the prices of agriculture goods are low in the market. Credit enables the farmers to withhold the agrl surplus and sell in the market when prices are high.
- 5. 6.To Face Crisis: The credit is required by the farmers to face crisis. The crisis can be caused by the failure of crop, draught or floods etc. 7.Purchase of Cattle: The farmer needs credit to purchase cattle. Because the farmers mostly remain free after cultivating the farm, therefore they want to start off- farm business by purchasing cattle. 8.Payment of ancestor's Debt: Most of the farmers remain in debt due to their ancestors.Therefore to retire the ancestors debt, the farmers take loan 9.Consumption expenditure: the farmers need loans for getting married their children etc, on which they spend a lot. 10. Civil and criminal suits: in order to civil and criminal suits, farmers need credit.
- 6. TYPES OF AGRICULTURAL CREDIT: • Agricultural credit can be classifified based on purpose, time (repayment period), security, generation of surplus funds, creditor and number of activities for which credit is provided. • i) Purpose: Based on the purpose for which loan is granted, agricultural credit is categorized into: • Development credit or Investment Credit: This is provided for acquiring durable assets or • for improving the existing assets. Under this, credit is extended for: • purchase of land and land reclamation. • purchase of farm machineries and implements • development of irrigation facilities • construction of farm structures • development of plantation and orchards
- 7. • - develonment of dairy, poultry, sheep/goat, fisheries, sericulture, etc. • Production credit: is given for crop, production: Here, the loan amount is used for purchasing inputs and for paying wages. • Marketing credit: It is essential to carry out the marketing functions and to get higher prices • for the produce. • Consumption credit: It is the credit required by the farmer to meet his family expenses. • ii) Repayment Period: Based on the period for which the borrower require credit, it is divided into: • Short-Term Credit: It is given to farmers for periods ranging from 6 to 18 months and is • primarily meant to meet cultivation expenses viz., purchase of seed, fertilizer, pesticides and payment of wages to labourers. It serves as the working capital to operate the farm efficiently and is expected to be repaid at the time of harvesting /
- 8. • Medium-Term Credit: Repayment is for the period of 2 to 5 years, It is for the purchase of • pump-sets, farm machineries and implements, bullocks, dairy animals and to carry out minor improvement in the farm. It can be repaid either in half yearly or annual installments. • Long-Term Credit: It is advanced for periods more than 5 years and extends even unto • twenty five years against mortagage of immovable property for undertaking development works viz., sinking wells, purchase of tractor, and rnaking permanent improverments in the farm. It has to be repaid in half-yearly or annual instalments. • iii) Secutirty: Credit is provided to farmers based on
- 9. iii) Secutirty: Credit is provided to farmers based on the security offered by them. • Farm Mortgage Credit: It is secured against mortgage of land. • Collateral Credit or Chattel Credit: It is given against the security of livestock, crop or warehouse receipt. • Personal Credit: It is given based on the character and repaying capacity of the person and not on any tangible assets. In general, LT credit is usually advanced against security of land while MT and ST loans are sanctioned against personal and. collateral security.
- 10. iv) Generation of Surplus Funds: Based on generation of surplus funds, credit can be classified as self-liquidating and non-self - liquidating credit. • a) Self Liquidating Credit: In this case, loan amount gets absorbed in the production process-in one year or production period and the additional income generated is sufficient to repay the entire loan amount. • b) Non-Self Liquidating Credit: Here the resources acquired with the borrowed funds are not consumed in the production process during the project period. The investment is spread over a period of several years. The additional income generated in one year is not sufficient to repay the entire loan amount and hence the repayment is spread over to number of years.
- 11. • v) Creditor or Lender wise Credit: Credit can be classified from the point of view of creditor. • Non - Institutional Agencies: They include money lenders, traders, commission agents, friends and relatives. This kind of loan is generally exploitative. • Institutional Agencies: They include co-operative’s, commercial bank and regional rural bank. • vi) Number of Activities Served: Based on the number of activities for which amount the loan • can be used, credit can be categorized into a) single purpose loan and b) composite loan.
- 12. SOURCES OF AGRICULTURAL CREDIT • Credit in the farm sector is available from two sources • 1.Non-Institutional Sources • 2.Institutional Sources
- 13. • 1. Non-institutional Sources of Credit: • The major non-institutional sources of farm credit are • Money lenders • Friends • Relatives • Landlords • Shopkeepers • Commission agents • The Money Lenders, mostly nonmuslims were the main suppliers of loans to the farmers.
- 14. • However, their importance has decreased to a great extent now and the short- term credit needs of the farmers are met from commission agents, friends and relatives which supply roughly 50% of total rural borrowings. • The commission agents advance loans to the farmers for short-period. They force the farmers to sell the produce to
- 15. • The lenders of the informal sources (friends, relatives etc) have certain advantages over the formal credit sources. • The informal lenders usually know the borrowers personally. • They require little security for advancing loans. • The loans are provided for consumption as well as production purposes. • The lenders are approachable at all times. • They are also lenient in rescheduling loans.
- 16. • 2. Institutional Sources of Credit: The major institutional sources of farm credit are • Agricultural Development Bank • Commercial Banks • Taccavi Loansa. • Agricultural Development Bank:the agricultural development bank is an important source for the supply of credit to agricultural sector. This bank provides short, medium and long term loans for farm and off-farm activities. The bank has the following windows
- 17. • 1. Development Loans • 2. Production Loans • 3. Agri-business Loans • 4.Off-farm income generative activites loans.
- 18. • Commercial Banks:commercial banks are providing loans to the farmers for meeting their short and medium term requirements. The loans are advanced to the farmers against the security of land, crop, fixed assets and even on personal security. • Taccavi Loans:Taccavi loans are handled by the Provincial RevenueDepartment. Necessary funds are allocated for different areas each year in the provincial budgets. The Taccavi loans are primarily given to the farmers for meeting emergencies such a flood, earthquake, famine etc. the farmers take these advances in the spirit of gift or relief given in calamity and are not serious in repaying them,
- 19. PROBLEMS OF AGRICULTURAL CREDIT The shortage of rural credit both in quantitative and qualitative terms continues to be a limiting factor in the modernization and growth of production in agriculture. The major problems which are being met by the farmers in the receipts of agricultural credit fron the institutional sources are summarized below: 1.Less Flow of Credit to Small Farmers:There are millions of small farmers throughout the country. The gain has reached more to the big landlords. It is therefore, an urgent need that the credit should reach the small farmers who are the backbone of agricultural industry.
- 20. 2. Complicated Produce for Advancing Loans: The procedure for advancing loans by institutional source is quite complicated. The loans are advanced to the farmers on the basis of pass books which contain the details of land owned by the farmers. The produce is quite complicated. 3. Amount of bad debit’s is increasing: The loans advanced particularly to the big landlords are not being repaid to the institutions. Since the big landlords have political influence, they, therfore, manage to get them written off.
- 21. 4. Delay in the disbursement of Credit: the procedure involved for advancing loans to the farmers is cumbersome. Who-so-ever succeeds in completing the documents is entitled to receive loans. It has been observed that the disbursement of credit is delayed even after it has been approved. It is a serious problem which the farmers are facing these days. 5. High Interest Rate:The interest charted by the various institutions on farm credit is high. The low income farmers can not bear it. As regards the interest-free loans, they are not reaching the small deserving farmers.
- 22. • The credit agencies mostly do not take the risk of advancing loans to the farmers because heavy rains and droughts etc can destroy the crops and thus the repayment of loans may become difficult for the farmers. • Due to unstable prices of the agricultural products, there is instability in the income of the agriculturalists. The credit institutions, therefore, hesitate to finance the farmers. • Most of the agriculturests who live on subsistence farm units do not have the adequate information of the credit institutions which supply loans to the farmers. • The villagers do not know how to keep the records of the loans which is a necessary element of poper credit analysis.
- 23. REMEDIAL MEASURES • The following measures if taken can solve the problem of the flow of agriculture credit to the needy farmers: • 1.The procedure for getting loans should be made easy. • 2. The commercial banks operating in government sector should provide loans to the farmers on low interest rate and without any mortgage. • 3 The provincial Govt. should allocate more funds for agriculture development as TACCAVI LOANS.
- 24. Remedial Measures for agri. credit ........ • There is a need for establishment of Agriculture developmen Bank and its various branches through out the country. • The Availability of Agricultural Credit should be advertised t the agriculturalists. • There is greater need for agricultural price policy whic stabilizes the prices of agri. products i.e. the income of th farmers. Hence the banks will agree to provide them loans du to stable prices.