Q.1. Explain the type of credit taken by farmers for different purposes . Bring out the significance andimplications of non-institutional credit .

Q.2. Why does the farmer need the services of a food marketing system ?

The type of credit taken by the farmers can be classified on the basis of the following grounds.

  • On the basis of purpose and use of the credit 
  • On the basis of duration of credit

On the basis of purpose and use, the rural credit can be further bifurcated into two sub-categories. 

1. Productive Credit- Required for purchasing farm inputs, raw materials (such as seeds, fertilisers, etc.) and machinery (such as tractor, threshers, etc.)

2. Unproductive Credit- Required to fulfill the personal expenses of the farmers and also to meet social obligations such as daughter’s marriage, medical expenses, etc. 


On the basis of duration of Credit, the rural credit is classified as:

1. Short term credit- Granted to the farmers for a short period of time ranging from 6 to 15 months. This type of credit is basically granted to meet the immediate farm needs such as seeds, fertilisers, and other vital farm inputs. 

2. Medium term credit: Granted for a time period between 15 months to 5 years. The rationale to take such credit is to purchase productive capital goods such as farm machinery and livestock, undertake land improvements, etc. Such credits are also taken to meet the social obligations such as daughter's marriage, medical expenses, etc. 

3. Long term credit: Granted for a period of 5years to 20 years. Usually required for purchase of land-farms, undertake modernisation and mechanisation by purchasing sophisticated and modern machinery.


Non-institutional sources of credit consist of the traders, moneylenders, relatives, landlords and others. This source of credit was very popular among rural people at the time of independence and is sometimes also known as Informal Sector. Some of the non-institutional sources of credit are discussed below:

(i) Money lenders: In the rural areas, moneylenders form the most popular source of credit. The villagers can readily obtain funds from money lenders for both productive as well as unproductive purpose. Money lenders can either be professional or non-professional. Professional moneylenders are those for whom lending money is their sole business. On the other hand, the main source of occupation of the non-professional moneylenders is farming or other such activities.  

(ii) Traders, Landlords and Relatives: Another important source of non-institutional credit in rural areas are the traders, landlords and relatives. Traders grant credit to the farmers by way of purchasing their produce. They force the farmers to sell their output at very low prices and in the process charge high amounts of commission for themselves. 

  • 6
What are you looking for?