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Rural Credit

Credit means loans. Credit is important for the economy because money becomes available for investment in the economy through credit which increases production and economy improves.

The loans given for investment in rural areas are called Rural Credit. Loans are needed in rural areas for economic activities in agriculture, animal husbandry, rural industry etc. In the olden days money lenders were the only source of loans in rural areas. They used to give loans at a very high interest rate after mortgaging land and other valuables. Because of the high interest rates people many a times were not able to return the loans and used to even loose their land. After independence laws were made to prevent exploitation by money lenders. In addition Government created many institutional mechanisms for rural credit including commercial banks, regional rural banks, cooperative banks etc.

When the first five years plan began approximately 70% rural credit was from money lenders. In 1954 the first All India rural credit survey was done. After this many efforts were made to increase rural credit –

1. Agriculture Finance Corporation was constituted in 1963.
2. Nationalisation of Banks was done in two phases in 1969 and 1980.
3. Regional Rural Banks were established in 1975.
4. NABARD was made in 1982.
5. Agriculture became an important component of Priority Sector Lending.
6. Rural credit increased with efforts of the Reserve Bank and other Financial Institution particularly in agriculture, agro-industry, rural infrastructure, Rural Projects, Green Revolution etc.
7. In the year1988 Narsimhan Committee recommended that commercial banks should have profit as the main motive. This resulted in reduction in rural credit. Many bank branches were closed down. Many RRBs were merged in each other. To an extent the credit by money lenders increased.
8. Recently the Jan Dhan scheme of the Government of India has started the process of financial inclusion in rural areas. This has given hope of a large increase in rural credit.

Main Sources of Rural Credit

It is estimated that at present approximately 63.56% of rural credit is from formal and 36.4% from non-formal sources. In the formal sources 3.61% credit is from Government, 25.37% from cooperative institutions, 71.02% from banks. In the non-formal sources 2.34% credit is from land lords, 64.05% from money lenders, 4.93% from shop keepers, 24.03% from friends and relatives and 4.65% from other sources.

Main Sources of Rural Credit are –

1. Cooperative Societies
2. Land Development Bank
3. Commercial Banks
4. Regional Rural Banks

Criticism

1. Availability of rural credit is not as per requirement.
2. The loans given to farmers are mostly less then what they need.
3. Since consumption loans are not easily available, farmers are forced to use the money from crop loans etc. for treatment of illness, marriages in family, etc.
4. Farmers get loans with great difficulty.
5. Red tape is a big problem.
6. Farmers have not protection from crop failure. This lead to an increase in rural indebtedness and a demand fro loan waivers.

Some important statistics of Chhattisgarh

1. RRB branches – 429 in 2008, 597 in 2017 ??? 597 and 607 in 2018
2. Total Credit by RRBs – Rs 800 Crores in 2008, Rs 2600 Crores in 2017.
3. District Cooperative Banks – 6, Primary Agriculture Credit Societies – 2257, Share Capital – 190 Crore, Deposit – 3403 Crores.
4. Number of Commercial Bank branches – As on 31.03.2018 - 2621