Study on Institutional Agricultural Credit and Repayment Behavior of Indian Farmers

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Study on Institutional Agricultural Credit and Repayment Behavior of Indian Farmers

Harjeet Singh (Assistant Professor)

Apex institute of management & computer application Bilaspur, Rampur India

Dr. HimanshuGupta (Assistant Professor) IFTM Mbd


Abstract: Agriculture plays a crucial role in the development of Indian economy. It accounts for about 19 percent of GDP and about two thirds of the populations dependent on agriculture, 60 percent companies are based on agriculture produce, 50 percent national income by Indian farmers. So that agriculture is the backbone of Indian economy. Agriculture credit facility is important part for the agriculture produce. It helps the farmers to purchase seeds, fertilizers, agriculture equipment and development of agriculture land and non- agriculture activities. I hope that study would useful and it helps to create awareness among agriculturist and their development. The main aim of the present study is to underline the institutional agricultural credits and repayment behaviour of farmers and their development as well as national economy.


Agriculture plays a crucial role in the development of Indian economy. It accounts for about 19 percent of GDP and about two thirds of the populations dependent on agriculture, 60 percent companies are based on agriculture produce, 50 percent national income by Indian farmers. So that agriculture is the backbone of Indian economy. India ranks second worldwide in farm outputs. The history of agriculture in India dates back to Indus valley civilization and even before that in some places of southern India. In agriculture farmer play important role. A farmer is a person engaged in agriculture, raising living organism for food or raw material.A farmer might own farmed land or might work as a labourer on land owned by others. Farmers are utilizing their own saving to produce and development of agriculture land. But in India most of the farmers are small; they have limited resources of income. If they use their saving to produce agriculture product and development of agriculture land, they become more vulnerable. Therefore institutional agricultural credit is an important way to development of Indian farmers.Ease of Use

Institutional agricultural credit

Institutional- Relating to a large organisation to build where people are looked after or hold.

Agricultural-Includes farming in all branches and among other things includes the cultivation and tillage of soil, production, growing and harvesting of any agricultural and horticultural commodities the raising of lives stock.

Credit- Words is derived from a Latin word CREDO, meaning I Belive.Credit is the trust which allow one party to provide money or resources to another party where in the second party does not reimburse the first party immediately but promises either to repay or return those resources at a later date.

Institutional agricultural credit- Means provide credit by any regional rural bank, co-operative banks, microfinance institution, money Landers, commission agent, traders and landlord for growing plants, crops and harvesting of crops.

Sources of institutional agricultural credit

  1. Institutional credit

    1. Co-Operative credit societies- are supposed to be the cheapest and most important source of rural credit. When co-operatives were first set up it was thought that they would be able to meet almost the entire credit needs of numerous small and medium farmers. As a result, the moneylenders would recede to the background. But this has not really happened. Till 1950-51 they played a passive role in the area of rural credit. However, during the plan period the co-operative societies have made steady progress and have succeeded to some extent in promoting thriftiness and self-help among farmers.

    2. Land development bank(land mortgage banks) – mainly provide long-term loans to farmers against the mortgage of their lands at low rates of interest over a period of 15 to 20 years. Farmers find borrowing from such banks attractive if costly land improvement programmes (such as digging or deepening of wells) are to be undertaken, or if additional land is to be acquired through outright purchase, or if previous debts have to be repaid.

    3. Commercial Bank- Before nationalisation of top 14 commercial banks in June 1969, they had an urban bias. They were mainly accepting deposits from the urban people and making loans to trade and industry. Agriculture and rural industries were neglected by them. Since agriculture by its very nature was a risky venture, private commercial banks turned away from rural areas since the nationalisation of commercial banks in 1969 the stress has been on expanding and strengthening the institutional structure of rural credit. However, even today the rural areas in India are yet not properly served by banking institutions.

    4. Regional rural bank-In 1975, the Government set up a network of regional rural banks to look into the special needs of small and marginal farmers, landless workers, rural artisans and the rural poor in general. The unique feature of the 196 RRBs operating since September 1990 is that they cater exclusively to the weaker sections of the rural community through nearly 14,800 branches spread over India. Almost all the tribal districts are covered. The RRBs have been lending around Rs. 400 per annum on an average.

    5. The Government- has also provided short-term and long-term loans to farmers in times of emergency such as floods or famine. Such loans are known as Taccavi loans. Such loans are offered at a concessional rate of interest (6%) and the mode of repayment is also very convenient. It can be repaid in several instalments at the time of payment of land tax.

  2. Non institutional credit

(a)Money landers-From the very beginning moneylenders have been advancing a major share of farm credit.

Moneylenders are of two different types-

  1. Professional moneylenders

  2. Agriculturist moneylenders

    These moneylenders were supplying a major portion of agricultural credit (69.7 per cent in 1951-52) and indulged into malpractice like manipulation of accounts and charged exorbitant rate of interest on their loan- often 24 per cent and over. Due to all these factors the share of moneylenders in total farm credit has declined sharply from 69.7 per cent in 1951-52 to 36.1 per cent in 1971 and then to only 16.1 per cent in 1981 and then to 7.0 per cent in 1995-96. (b)Traders and Commission agents-Traders and commission agents are also advancing loan to the agriculturist for productive purposes before the maturity of crops and then force the farmers to sell their crops at very low prices and charge heavy commission. This type of loans is mostly advanced for cash crops.

  3. Relatives- Cultivators are also normally borrowing fund from their own relatives in times of their crisis both in terms of cash or kind. These loans are a kind of informal loans and carry no interest and are normally returned after harvest. The importance of this source of farm credit is also declining as its share of agricultural credit has already declined from 14.2 per cent in 1951-52 to 8.7 per cent in 1981 and then to 3.0 per cent in 1995-96.

  4. Landlords-in India, small as well as marginal farmers and tenants are also taking loan from the landlords for meeting their financial requirements. This source has been following all the ill-practices followed by money-lenders, traders etc. Sometimes landless workersare even forced to work as a bonded labour.

Next sub section will explain agriculture loan repayment ehaviour of farmers.

It means not paying the loan amount which taking from the any formal financial institution or bank. Agriculture loan repayment mean not payment of agriculture loan which farmers getting from the bank and other formal financial institution as on financial year.




Achieved %













Fig- Agriculture loan target report (1)


Total disbursed amount

Loan disbursed to SF/MF out of total disbursement

% share of SF/MF in total amount disbursed













Fig- Loan repayment report (2)

Socio- economic

Demograph ic

Environm ental factor

Internal factor

External factor





1.High rate

2.Lack of




of interest







3.Farm size


of loan



4.Age of




4.Income of










5.Lack of














n of loan



of loanee

Fig-Responsible factors for repayment behaviour of farmers (3)


WaqarAkram (2008) studied on agricultural credit control and borrowing behavior of farmers. According to him two types of constraints/variable. The dependent variable and independent variable. It includes;

Land value- Value of land owned

Value of farm implements- value of owned farm tools Number of dependents- Number of family members Farm experience- Years of farm experience Initial Liquid assist- Value of grain in store Previous years income- Previous year income.

YasirMehmood (2012) stated in his study that internal and external factors affecting delay in repayment of agricultural credit. Internal factors he includes the questions as miss utilization of loan, political approach of borrowers, death/accident of the loanee, change in business, transfer of field staff and in external includes high rate of interest, climate condition, prices of inputs, loss/more loan than required, lack of utilization etc. He suggested that financial institution should development of monitoring , tracking system, reduce rate of interest, legal action against willful defaulters, group financing system and musharka/muzarba helped to increase the repayment ability of farmers.

Ifeanyi A (2012) studied on economic analysis of loan repayment capacity of small cooperatives farmers in Ogun, Nigeria. This study examined the farmers loan repayment behavior is based on the socio-economic and demographic characteristic of farmers. According to him farmers loan repayment behavior is based on lack of adequate, accessible and affordable credit, poor management procedures, loan diversion, unwillingness of repaying agriculture loan.

M. Alexpandi(2014) analysis the use of agricultural credit and repayment agricultural credit. This study showed that used of agricultural credit by farmers was based on age, family expenses, gender, material status, family size. He was found that old age farmers and married couple used less agricultural credit for their own used as compare to young and single farmer. He also studied about the repayment factors affecting the behavior of farmers. He

included high irrigational expenses, children educational expenses, crop failures, high cost of inputs and less agricultural income. The result of this study show that utilization of agricultural credit mainly based on delay in getting loan, proper utilization of agricultural credit helped to increase repayment ability of farmers.

Sultan (2016) identified that farmers not properly utilized the agriculture loan. Framers getting loan for purchasing of agriculture seeds, agriculture equipment, purchase tractor, agriculture land development. But farmers used agriculture loan for non-agriculture activities like- marriage, purchase vehicle, making house and family functions. The date collected by cluster technique and convenience sampling. In this condition farmers did not able to pay their loan and increase their debt. Along this high rate of interest, gap between agriculture productions, high formalities effect disbursement of agriculture loan. He intercept effect of credit is negative, 1 % increase in credit will bring decrease of 0.112550 % in production and rate of interest show negative impact on production. If the rate of interest is increase 1 % will decrease 0.029445 % in production.

Solomon (2016) studied on the effects of microfinance banks loans on the livelihood of small-holder farmers. This study based on primary and secondary data. A multi- stages random sampling techniques used for collecting data. He identified that if government provide some facilities to the farmers it leads to increase the standard of farmers. Some facilities like; national accelerate food production project, agriculture credit guarantee scheme fund, green revolution programme, national seed service and national economic empowerment development strategies. On the basis of study 86.07% farmers in the favor that microfinance bank improves economic condition and livelihood. On the other hand 3.66% farmers says that microfinance bank not improving economic and livelihood.

Ajayi (2017) was studied on the impact of agriculture financing policy and deposit money bank loan on agriculture sector. They identified that agriculture financing policy more effective as compare to agriculture loan. He suggests that government should provide some agriculture financing policies and deposit loan scheme for farmers which are not repayment of their loan. The coefficient of commercial banks rate impact on agriculture domestic products by (-0.4761) with p- value (0.0098).This indicates 1 % change in lending rate to agriculture sector impact048 % reduction in agriculture gross domestic product. This implies that 1 % change in agriculture credit guarantee scheme fund increase 40 % agriculture gross domstic product.

R.Subramanian (2017) analyzed the problem faced by the farmers in obtaining & repayment of agriculture credit and indicated that farmer facing so many problems such as non- availability of loan on time, expensive and long procedure, inadequate loan amount, document expenses etc. On the other hand after getting loan from agriculture credit institution farmers not repayment of their loan due to crop failure, failure of monsoon, lower yield, increase input cost, family size, higher rate of interest and willful default etc.

Nwafor Grace o (2018) studied examined the loan repayment behavior of farmers. The behavior of farmers

was depending on the socio-economic variable. Socio- economic variables include household income, household earning, occupation, loan diversion, unwillingness to repay etc. He also studied about some factors which are related to the institutional credit agencies. He included the shortage of trained managers, lack of understanding of the approaches of cooperation, excessive government control, inadequate financing and lack of trust among members. On the other hand he also studied about some factors which are related to the cooperatives societies. It includes unprofitable scale of operations, defective management, and shortage of skill manpower, dishonest staff, administrative bottleneck and corrupted staff. The educational qualification of farmers will increase N 14254.74 repayment ability, farm size will increase around N 3765.25 repayment ability and loan application cost will N 3.25 reduction in repayment ability of farmers.

B.S.Navistudied on the impact of regional rural banks on rural farmers. Researcher used convenient sampling method for data selection. He identified that regional rural banks provide various plan and programmed for farmers but the farmers did not getting their benefits because farmers are uneducated, long loan process, guarantee problem, loan amount and other bank charges. On the basis of study out of 90 farmers 60 farmers applied for loan but

    1. % not taking loan because fear of rate of interest, 33.3% not taking loan because of legal formalities.


      The research aims to propose with the following objectives:-

      • To analysis the impact of agricultural credit in agricultural development or economic development.

      • To study the present situation of institutional agricultural credit.

      • To analysis the factors which are responsible for farmers behavior of repayment.

      • To suggest a programme and measures for removed of these types of problem.


Agriculture loan is important part of the agriculture produce. Agriculture loan helps the farmers to purchase seeds, fertilizers, agriculture equipment and development of agriculture land and non-agriculture activities. This proposed study would be useful for farmers, banks and government. These proposed studies important because it helps to identify that farmer are utilized credit for agriculture and other purposes. It also helps to show the growth of institutional agricultural credit in the terms of credit and loan disbursement amount. It help for government, ministry of finance, banking institution and other financial institution to make their future plan on the basis of loan amount and loan disbursement. This proposed study also important for farmers because it helps to create awareness and provide information about the government policies and programs for development of farmers.


Research is a common phenomenon which refers to search for Knowledge and a task of actually selecting a method for research is known as Methodology. Research methodology plays a vital role in any research and choosing the right methodology is indeed a complex task. The objectives of proposed work are to find the credit facilities and impact on a developing economy. Its a descriptive and Analytical type of work. It is an attempt to understand and differentiate the significance of agriculture credit in rural development as well as the farmers development. The study would be predominantly based on secondary as well as primary research. Primary information will be collected from different previous resources like- farmers, institutional & non- institutional credit agencies, RBI reports, books & journals, previous research finding & literature. Research instrument will include as trend analysis & time series to show the financial status of institutional agriculture credit agencies. A coefficient of co- relation is the tool to show the relation between agriculture inputs and productivity. Some other appropriate tools are used by researchers which will be suitable on the basis of objectives of study.


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  2. YasirMehmood, Mukhtar Ahmad, Muhammad BahzadAnjum, Factors affecting delay in payment of agriculture credit; a case study of district kasur of Punjab province, World applied science journal 17 (4): 447-451, ISSN 1818-4952.2012

  3. Ifeanyi A. Ojiako, Blessing C. Ogbukwa, Economic analysis of loan repayment capacity of small- holder cooperatives farmers in Yewa north local government area of Ogun state, Nigeria, Journal of agricultural research Vol. 7 (13) pp. 2051-2062,ISSN 1991-637X ,5 April 2012.

  4. M. Alexpandi, S.Ramesh Kumar, Utilization and repayment of agricultural credit- the case of Madurai district, Tamil Nadu, Journal of rural development, Vol 33 No. (2) pp. 147-159 NIRD, Hyderabad. (2014).

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  6. Enimu Solomon, Igiri Juliana and Achike I. Antonia, Analysis of the effects of microfinance banks loan on the livelihood of small- holder farmers in delta stateNigeria,Economic affairs Citation: EA: 61(3): pp. 381-390, New Delhi publishersSeptember 2016.

  7. Ajayi, Micheal Adebayo, Nageri, KamaldeenIbrahen and Akolo, Christy Seyi, Impact of agricultural financing policy and deposit money bank loan agricultural sector productivity in Nigeria, Amity journal of agribusiness Vol 2, Issue-1, (1-11)


  8. R. Subramanian and Sunil Shivananjappa, Investigation on the problem faced by the farmers in obtaining and repayment of agricultural credit in Karaikal District, India), International journal of current microbiology and applied science, ISSN: 2319- 7706 Vol- 6 No. 11, pp. 3966-3971,2017.

  9. Nwafor Grace O, AguAguiyi Fortune, AnigboguThersa and Umebali E.E., Loan repayment behaviour among members multipurpose cooperative societies in Anambra State, International journal of community and cooperative studies Vol.6 No. 1, pp. 28-49, April 2018.

  10. Dr.B.S. Navi, Impact of regional rural banks on rural farmers- A case study of Belgaum District,International journal in multidisciplinary and academic research, Vol- 02, No.1, ISSN 2278-5973, January- February..



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