Contents

  1. Significance of Agricultural Finance:
  2. Credit needs in Agriculture:
  3. 7 Ps of farm credit

Significance of Agricultural Finance

  • Agril finance assumes important and important importance within the agro – socio-economic development of the country each at macro and small levels.
    • It is enjoying a chemical process role in strengthening the farm business and augmenting the productivity of scarce resources.
    • Use of recent technological inputs purchased through farm finance helps to extend agricultural productivity.
    • Accretion to in farm assets and farm supporting infrastructure provided by massive scale money investment activities leads to enlarged farm financial gain levels resulting in enlarged normal of living of rural lots.
    • Farm finance also can scale back the regional economic imbalances and is equally sensible at reducing the inter–farm plus and wealth variations.
    • Farm finance is sort of a lever with each forward and backward linkages to the economic development at the small and macro levels.
    • As Indian agriculture continues to be ancient and subsistence in nature, agricultural finance is required to form the supporting infrastructure for the adoption of recent technology.
    • Massive investment is required to hold out major and minor irrigation comes, rural electrification, installation of chemical and chemical plants, execution of agricultural promotional programs, and poorness alleviation programs within the country

Credit wants in Agriculture

  1. Shopping for agricultural inputs like seeds, fertilizers, plant protection chemicals, feed and fodder for kine, etc.
  2. Supporting their families in those years once the crops haven’t been sensible.
  3. Shopping for further land, to create enhancements on the prevailing land, clear previous debt, and buy pricey agricultural machinery.
  4. Increasing the farm potency as against limiting resources

7 Ps of farm credit

The enlarged role of economic establishments because of technological changes on the agricultural front necessitated the evolving of principles of farm finance, that are expected to bring not solely the industrial gains to the bankers however conjointly social edges. The principles thus evolved by the institutional money agencies are expected to possess universal validity. These principles are popularly referred to as seven notation of farm credit and that are delineated below

  • Principle of productive purpose refers to the loan quantity given to a farmer and therefore recipient ought to generate further financial gain. Supported the extent of the owned capital obtainable with the farmer, the credit wants to vary. The farmers of little and smallholdings do want another kind of credit i.e. consumption credit, thus on the use the crop loans fruitfully. The extra financial gains generated from these productive assets boost the income obtained from the farming and thereby will increase the productivity of crop loans taken by little and marginal farmers.
  •  Principle of temperament: The 3Rs of credit are sound indicators of the credit goodness of the farmers. Over the years of experience in disposal, the bankers have known a vital think about credit transactions i.e. trustiness of the recipient.
  • Principle of productivity: This principle underlines that the credit that isn’t simply meant for increasing production from that enterprise alone however conjointly ought to be able to increase the productivity of alternative factors used in this enterprise. Thus this principle emphasizes creating the resources as productive as doable by the choice of most applicable enterprises.
  • Principle of phased disbursement: This principle underlines that the loan quantity has to be distributed in phases, thus build it productive and at constant time banker also can make certain concerning the correct finish use of the borrowed funds. However, one disadvantage here is that it’ll build the price of credit higher. That’s why the interest rates are higher for term loans when put next to the crop loans.  
  • Principle of correct utilization: Correct utilization implies that the borrowed funds are to be utilized for the aim that the quantity has been the season. The resources like seeds, fertilizers, pesticides, etc., are free from adulteration, whether or not infrastructural facilities like storage, transportation, promoting, etc., are obtainable. So correct utilization of funds is feasible if there exist appropriate conditions for investment.
  • Principle of payment deals with the fixing of compensation loan schedules which is authorised by the institutional money agencies. For investment credit advanced to irrigation structures, tractors, etc the annual repayments are fastened over a variety of years supported by the progressive returns that are presupposed to be obtained when deducting the consumption wants of the farmers. A grace amount of 2-3 months are going to be allowed when the harvest of the crop changes the farmer to comprehend affordable value for his manufacture. Otherwise, the farmer can resort to distress sales.
  • Principle of Protection: They resort to safety measures whereas advancing loans like
  • Insurance coverage
  • Linking credit with promoting
  • Providing finance on the production of warehouse receipt
  • Banks advance loans by mortgage of assets
  • Deposit Insurance Credit Guarantee Corporation of India (DICGC) reimburses the loans to the disposal agencies on behalf of the borrowers.

About the Author

BankReed Admin

Banking Professional with 16 Years of Experience. The idea to start this Blogging Site is to Create Awareness about the Banking and Financial Services.

View All Articles