why the farmers need credit ? explain the various sources of credit proving agencies in rural areas

Solution:

The following factors highlight the importance of rural credit for the farmers.

1. Commercialisation of Farming: Credit helps the farmers to commercialise their farming. Easy and cheap availability of rural credit enables large scale production and commercialisation of agricultural sector.  

2. Long Gestation Period: In the agriculture sector there exists a time gap between the investment made by the farmers on the farming inputs and the receipt of income from the sale of the output. A a result, farmers often fail to finance the initial requirements such as seeds, fertilisers, tools, etc. Here, credit plays a crucial role for the farmers for meeting their initial requirements of farm inputs.

3. Vicious Circle of Poverty: Credit saves the farmers from the vicious circle of poverty. The farmers require funds for meeting their general and specific needs. These needs are to be fulfilled via credit. 

4. Insulate farmers from natural calamities and dynamic market environment: Indian agriculture has always been dependent at the vagaries of climate. In the absence of good monsoon or crop failure, farmers are worst hurt. This pushes farmers into debt trap, thereby, prohibiting them to undertake farming in the subsequent period. Therefore, crop insurance and farm credit insulates farmers against any unfavourable market environment and natural calamities such as flood, etc.

Sources of Rural Credit

Sources of rural credit in India can be divided into two broad categories.

1. Non-institutional Sources: Non-institutional sources of credit consists of the traders, money lenders, relatives, landlords and others.

2. Institutional Sources: Institutional sources of credit comprise of co-operative banks and co-operative credit societies, Regional Rural Banks, commercial banks, land development banks.