‘Access to formal credit increases income of farmers’

The returns earned by farmers, who have access to formal credit, are on an average 17 per cent higher than what farmers, who are dependent on informal sources including loan sharks, earn, said an agricultural economist.

Besides, access to institutional credit increases the per capita monthly consumption expenditure (MCE) by 10 per cent compared to those without formal credit facility. The per capita MCE is a proxy for household income and, therefore, an increase in household expenditure reflects a decline in poverty, said Anjani Kumar, Research Fellow at the International Food Policy Research Institute (IFPRI), New Delhi Office.

“The government has been making efforts to enhance the flow of credit to the agriculture sector and they are bearing fruits. However, the demands for agricultural credit are still unmet from the formal sources and, therefore, farmers resort to informal sources to meet their borrowing needs, said Kumar who gave a presentation at the recently concluded 14th Agricultural Science Congress here.

Agricultural households’ access to institutional credit is influenced by a number of socio-economic, institutional and policy factors such as education, caste affiliation, gender and assets ownership.

The decadal share of institutional credit in rural borrowings has grown from a mere 8.8 per cent in 1951 to 60.3 per cent in 2013, showed the data currently available. Interestingly, there has been an annual growth of 7.5 per cent in institutional borrowing against 5.7 per cent in non-institutional borrowing. In 2003, these growth rates were 7 per cent and 5.2 per cent, respectively.

Of ₹9.42 lakh crore disbursed as institutional credit to agriculture, 72.4 per cent came from scheduled commercial banks, 12.2 per cent from regional rural banks and 15.4 per cent came from co-operative banks. Kumar said there has been an increase in cases of farmers with smaller holdings getting higher credits, but recent data is lacking to show the latest trends. The data for disbursement of credit vis-a-vis farm size is available only for the period till 2011-12, Kumar said. As per this data, 28.7 per cent of institutional credit went to farmlands up to the size of 2.5 acres, 29.8 per cent to farming land of size between 2.5 acres and 5 acres and 41.5 per cent to those above 5 acres.

The Nabard-All India Rural Financial Inclusion Survey 2016-17 provides the percentage of institutional or formal credit in different categories of agricultural households. “These data show an inverse relationship between the share of formal credit and the land-holding,” Kumar said.

On the other hand, a survey conducted by IFPRI in three eastern States — Bihar, Jharkhand and east Uttar Pradesh — showed that farmers are increasingly dependent on informal sources of credit which come at very interest high rates, he said.

The government can take certain steps to ensure that small and marginal farmers have access to more institutional credit, the IFPRI scientist said. Universalisation of Kisan Credit Cards (KCCs), expansion of use of KCCs for non-agricultural purposes, just like commercial credit cards (with a repayment period of 90-120 days), simplification of documentation and procedures for disbursement of small loans, and extensive campaign or financial literacy are some of the measures that can help, Kumar said.

He also pointed out that social safety net programmes like the Mahatma Gandhi National Rural Employment Guarantee Act (Mgnrega) and the National Food Security Mission (NFSM) may have unintended consequences. “Because of these social safety nets, farmers sometimes do not use credit as efficiently as done by non-beneficiaries as they have backup support.” .

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