What is Agricultural Credit | Classification of Agricultural Credit |Agricultural Credit in India |Types of Agricultural Credit

Agricultural Credit :

 Agricultural Credit is the amount of investment funds made available for agricultural production from resources outside the farm sector.

Classification of Agricultural credit:

  Agricultural credit can be classified based on following categories 

• Purpose
• Repayment Period
• Security
• Generation of Surplus Funds
• Creditor or Lender wise Credit
• Number of Activities Served

 i) Purpose: 

Based on the purpose for which loan is granted, agricultural credit is categorized into:

 1) 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,  development of dairy, poultry, sheep/goat, fisheries, sericulture, etc.

2) Production credit: is given for crop, production. Here, the loan amount is used for purchasing inputs and for paying wages. 

3) Marketing credit: It is essential to carry out the marketing functions and to get higher prices for the produce.  

4) 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 requires credit, it is divided into: 

1) 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 / marketing of crops. It. should be repaid in one installment. 

2) 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. 

3) Long-Term Credit: It is advanced for periods more than 5 years and extends even unto twenty five years against mortgage of immovable property for undertaking development works viz., sinking wells, purchase of tractor, and making permanent improvements in the farm. It has to be repaid in half-yearly or annual installments. 

 

iii) Security: 

Credit is provided to farmers based on the security offered by them. 

1) Farm Mortgage Credit: It is secured against mortgage of land. 

2) Collateral Credit or Chattel Credit: It is given against the security of livestock, crop or warehouse receipt. 

3) 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. 

 

iv) Generation of Surplus Funds: 

Based on generation of surplus funds, credit can be classified as self-liquidating and non-self -liquidating credit. 

1) 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. 

2) 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. 

 

v) Creditor or Lender wise Credit:

Credit can be  classified from the point of view of creditor. 

1) Non - Institutional Agencies: They include money lenders, traders, commission agents, friends and relatives. This kind of loan is generally exploitative. 

2) Institutional Agencies: They include co-operatives, 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. 

Types of Agricultural Credit : 

 Considering the period and purpose of the credit requirement of the farmers of the country, agricultural credit in India can be classified into three major types 

• Short term credit: The Indian farmers require credit to meet their short term needs viz., purchasing seeds, fertilizers, paying wages to hired workers etc. for a period of less than 15 months. Such loans are generally repaid after harvest.

• Medium-term credit: This type of credit includes credit requirement of farmers for a medium period ranging between 15 months and 5 years and it is required for purchasing cattle, pumping sets, other agricultural implements etc. Medium-term credits are normally larger in size than short term credit. 

• Long term credit: Farmers also require finance for a long period of more than 5 years just for the purpose of buying additional land or for making any permanent improvement on land like the sinking of wells, reclamation of land, horticulture etc. Thus, the long term credit requires sufficient time for the repayment of such loan.