WHAT ARE THE SOURCES OF INSTITUTIONAL FINANCE TO AGRICULTURE?

Introduction:
Finance is most essential for farmers. This finance can be secured from
various sources which can be classified into
(1) NON-INSTITUTIONAL (2) INSTITUTIONAL
INSTITUTIONAL SOURCES OF FINANCE
The share of institutional finance has increased substantially. Within this
sector, cooperative & commercial banks have been playing major roles in
agricultural credit.
The chart below brings out the
sources of institutional finance.

It can be noted that the co-operatives share has been declining over the
period. Share of RRI is negligible whereas share of commercial banks have improved
(1)CO-OPERATIVES BANKS :co-operative credit societies were established to provide rural credit at
a lower cost. By 2005, the cooperatives have covered 97% of the villages with
almost 900 lakh members. They provide short term & long term loan through credit
societies.
Short term credit structure is based on a 3-tier structure
(1)At the village level, the primary agricultural credit societies (PACs) provide credit
to the farmers. They form the lowest tier.
(2)At the second tier there are central co-operative banks
at the district level. They provide loans to PACs.

(3)At the third tier, the state

co- operative banks are present. It provides loans to central cooperatives
for long term credit they work at two levels
(1) At the district level there are primary land development
banks
(2) At the state level state land development
banks.
In 1971, large sized adivasi
multi purpose co-operative societies (LAMPS) were organised in the adivasi and
tribal areas. They also suffer from various limitations like low profitability, poor
recovery &lack of professional management.
(2)COMMERCIAL BANKS:commercial banks lending can be classified as
(1) Short term finance: - It is extended for purchasing fertilizers, seeds,
pesticides,etc. it provides the required working capital.
(2) Medium term finance: - Money borrowed under this is usually used to
purchase cattle, equipment & improvement of land.
(3) Direct finance: - It is meant for expenditure on
purchasing pump sets, agriculture machinery. Lending under direct finance has
been around 10% of the total lending.
(4) Indirect finance: - It is granted to cooperative societies of various types to
enable them function more effectively.
(5) Lead bank scheme: - It was launched by the reserve bank of India to make
individual commercial banks responsible for the development of individual districts.
These banks provide nearly 18% of the
net bank credit. They suffer from various problems like low quality of lending, low
level of recovery, regional imbalance, lack of coordination etc.
REGIONAL RURAL BANKS
They were established in 1975 on the recommendation of
M.Narsimha committee. These banks were regionally based, rurally oriented &
generally sponsored by scheduled commercial banks & in some cases by private
sector banks as well as state cooperative banks.
The main
objective is to supply credit to those areas where other financial institutions are not
active. They suffer from various problems like political interferences, poor recovery
etc.

WRITE A NOTE ON NABARD

NABARD was setup in 1992. It is the apex bank for rural credit & development.
The share capital of NABARD was contributed by the government of India & RBI. It
has the objective of strengthening the credit structure for agriculture & rural
development.

ROLE & FUNCTIONS OF NABARD

(1)Apex body for rural credit :- As the apex institution, it has to take care of
financial requirements of agriculture & rural development.
(2)Supervising co-ops:- It inspects central & state cooperative banks & regional
rural banks.
(3)Short term credit: - State cooperative banks get short term loans upto 18
months from NABARD.
(4)Medium term credit: - It is given to state cooperative banks & RRBs to provide
loans to farmers.
(5)R&D :- Apart from agricultural & rural development it also maintains a special
fund namely Research & Development Fund to promote research in agriculture &
rural development.

CONTRIBUTION OF NABARD TO AGRICULTURE FINANCE

(1)Micro finance :- This scheme was introduced in 1992. the scheme has been
implemented through self-help group. The beneficiaries of this programme comprise
the marginal farmers, landless labourers, artisians & craftsmen etc. the progrmme
has enabled about 450 lakh poor households to gain access to micro finance from
the banking system.
(2) Bulk lending support to NGOs :- NABARD introduced this scheme for onlending to rural micro & household enterprise. NGOs receive finance under this
scheme.
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(3)Gender development through credit :- Activities such as rural
entrepreneurship development programme ,skill upgradation,
handlooms,readymade garments &electronics have been undertaken.
(4)Farm income insurance scheme :- It was introduced in 2003-04. It provides
income protection to the farmers by integrating the mechanism of insuring
production as well as market risks.

(5)Kisan credit card :- It was introduced in 1998-99 to help farmers to get short
term credit.
Conclusion: Thus , NABARD has been playing a crucial role in the
channelization of bank credit to agricultural &rural development.