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Agricultural Credit

The term agricultural credit encompasses all the financial services, including agricultural loans provided to people in the agricultural sector. Farmers can use agricultural credit to:

  • Buy equipment to help them conduct their farming activities

  • Buy inputs such as seeds, fertilisers, and so on

  • Construct infrastructure such as godowns, irrigation channels

  • Manage harvest, and supply chain / logistics too

Farmers can avail crop loans for short-, medium-, and long-term durations. It is interesting to note that agricultural credit helps farmers carry out a wide range of allied activities too such as investing in non-conventional energy sources, and different types of agro-processing functions and so on. Livestock loans, microfinance, and crop insurance can also be considered as a part of agricultural credit.

How does it work?
Agriculture is a major contributor to India’s growth. And like any other sector of the economy, agriculture, and farmers need financial support as well. Along with the specialised sector of agricultural banking, farmers can get help from various schemes and programmes related to agricultural credit. Banks, the government, institutions such as National Bank for Agriculture and Rural Development (NABARD), and others help in providing financial services to farmers.

The duration of credit is important. Typically, short-term credit is used by farmers for buying seeds, inputs such as fertilisers, and even paying wages to the workforce on their farms. This type of credit is for a duration of less than fifteen months. Medium-term credit typically lasts between fifteen months and five years and is used for purchasing livestock, agricultural implements, and pumps too. Long-term credit goes into buying land, larger equipment, and even sinking wells to help in irrigation of fields.

Palm holding a money bag with agricultural background

Depending on the duration, terms, and quantum of credit that is needed, farmers can approach any of the following for financial support:

  • Government schemes

  • Moneylenders

  • Cooperatives

  • Micro-finance agencies

  • Institutions like NABARD

  • Commercial banks

  • Regional rural banks and so on

The government also sets targets for agricultural credit. In 2024, the government increased this to Rs.20 lakh crores. Agri startups, and rural agripreneurs can find support via these measures aimed at improving the availability of financial services to farmers.

Benefits of agricultural credit
Agriculture in India is also managed by small landholders. In fact, they are a majority when it comes to crop cultivation in India. The infusion of credit in the agri sector helps these small farmers tremendously. There is also the question of conventional banks finding these small farmers bankable, and that’s where agricultural credit from non-banking institutions comes in.

Agricultural credit also helps improve a stronger agri-value chain for marginal, small, and women farmers. This is also happening because of including different channels such as the Department of Post in India, when it comes to agri-financial services. Crop insurance, credit cards, subsidy management, and mobile apps – they are all playing huge roles in improving the landscape of agricultural credit in India.

Even with all the progress that India has made in risk management, weather forecasting, supply chain, and so on, there is no doubt that agriculture is still a challenging sector. Farmers must deal with all kinds of risks, even while nurturing their livelihood. Therefore, agriculture credit will always play a vital role in a farmer’s life.