What is Gestation Period?

 

It is time between

Date of Sowing

and

Date of Realisation of Income

 

In easy language,

If a farmer grows crop today, it will take time to grow up and only when they are cut, they can be sold in market after some months

This Period is called Gestation Period

Why do Farmers need Credit - Teachoo.JPG

Why do farmers need Credit?

or

Why do Farmers borrow money?

Farmers need funds during gestation Period

If a farmer grows crop today, it will take time to grow up and only when they are cut, they can be sold in market after some months

Farmers will realise income

During this Period farmers have to inccur lot of expenses

like

Expenses on growing Crops (Seeds, fertilizers, labour, Pesticides)

Personal Expenses (Family Wedding, Day to Day expenses)

To meet these expenses, Farmers borrow funds

 

For what expenses  do Farmers need Credit - Teachoo.JPG

What was Condition of Agriculture Credit at the time of Independence?

At time of Independence

Farmers used to borrow funds from Moneylenders and Traders

 

These People charged high interest rates and manipulated the accounts

This kept people in debt trap

 

Condition of Agricultural Credit at time of Independence - Teachoo.JPG

What Measures were taken by Govt to meet needs of Rural Credit?

1 Social banking

India adopted Social Banking in 1969

Banking system in which banks subsidize the provision of banking services to poor and the focus is towards serving the masses is known as social banking.

 

India established different type of instituitions like Commercial banks, Regional Rural banks, Cooperative banks etc whose objective was to give loan at less rate of interest to farmers.

 

 

2 NABARD

National Bank for Agriculture and Rural Development was set up in July, 1982

The main funtion was to coordinate the activities of all instituitions involved in rural financing system

 

3 Production Oriented Lending

Green Revolution bought many changes in Credit System

Production Oriented Lending was launched by instituitions which gave credit during gestation period of crop

 

Different Institutions Involved in Lending

Multi Agency Instituitions are involved in Rural Lending like:

1 Commerical Banks

2 Regional Rural Banks

3 Cooperatives

4 Land Development Banks

5 Self Help Groups (SHG)

 

Measures taken by Govt to Improve Agriculture Credit - Teachoo.JPG

What is Contribution of Self Help Group to Rural Lending?

What are Self Help Groups - Teachoo.JPG

In Self Help Groups

All farmers contribute a small amount

They pool the total

Credit is given to needy members at very less rate of interest

Since amount involved is very small, it is called micro credit programs

 

 

 

 

 

 

SHG is more popular among men or women?

SHG is particularly popular among women

Around 54 lakhs women are member of SHG

Most of these borrowings are for consumption purposes like spending for wedding etc and not for production process

This is because nornally male members of family take decision regarding production (not female)

 

 

What measures have been taken by Govt to Promote SHG?

Government also contributes amount to SHG along with the members

10,000 - 15,000 Per SHG

 

 

 

 

+

2.5 Lakhs per SHG (as Community Investment Support Fund)

 

 

What are Criticisms (or Drawbacks) of Rural Banking Systems in India

1 High Agriculture Default Rates

Many Farmers fail to pay back loans.

Some of this is due to crop failure.

Some farmers also do not repay loans deliberately as political parties promise waiving of their loans

 

2 No Deposit MOBILISATION

Banks have not encouraged the habit of thrift or savings in farmer

 

 

 

Hence, farmers do not save money and keep it in banks

If they kept this money in banks, deposits of banks will increase and they could give more loans

 

3 Lack of Expansion and Promotion of Rural Bankings

Reforms made in 1991 did not focus on expansion of rural bankings

Hence, there are lack of banks and credit facilities in remote areas

Criticisms(or Drawbacks) of Rural Banking Systems in India - Teachoo.JPG

Why are many farmers committing suicides?

They commit suicide because of :

1 Loss due to Crop Failure

2 Pressure of Money lenders due to Failure to Pay Loans and Interest

3 Lack of alternative employment opportunities

 

Regional Rural Banks came into existence on Gandhi Jayanti in 1975

 

Ans

Q2

Discuss the importance of credit in rural development.

View Answer

 

Q3

Explain the role of micro-credit in meeting credit requirements of the poor.

View Answer

 

 

Q6

Critically evaluate the role of the rural banking system in the process of rural development in India.

View Answer

 

MCQ Other Books

Q1

In the following questions, select the correct answers:

1 ____ is the apex body which coordinates the functioning of different financial institutions working for expansion of rural credit.

A NABARD

B Self-Help Groups

C Regional Rural Banks

D Commercial Banks

View Answer

 

Q2

The problems faced in Rural Banking are:

A High Agriculture Default Rates

B No Deposit MOBILISATION

C Lack of Expansion and Promotion of Rural Bankings

D All of these

View Answer

 

Q3

3 Government established the institutional sources of finance:

A To provide adequate credit to farmers at a cheaper interest rate

B To assist small farmers in raising the agricultural productivity and maximising their income

C To earn profits

D All of these

View Answer

 

4 The scheme of "Micro Finance" is extended through:

A Self-Help Groups

B Land Development Banks

C NABARD

D Regional Rural Banks

View Answer

 

5 Which one of the following is not a non-institutional source of credit?

A Money Lenders

B Co-operative Credit

C Traders and commission agents

D Land development bank

View Answer

 

 

Q1

Q. 11. Identify the correctly matched item from Column A to that of Column B:

Column A  Column B  
(1) Reserve Bank  (a) 1969  
(2) Regional Rural Bank  (b) 1975  
(3) NABARD  (c) 1971  
(4) Development Bank  (d) 1980  

 

A 1 – (a)

B 2 – (b)

C 3 – (c)

D 4 – (d)

View Answer

 

Q2

When was NABARD constituted?

A July, 1982

B June, 1982

C July, 1980

D July, 1984

View Answer

 

Q3

Which institute do not provide direct loan to farmers?

A NABARD

B Commercial Bank

C Regional Rural Bank

D Primary Agriculture Credit Society

View Answer

 

Q4

Identify the correctly matched pair in Column A and Column B from the following:

Column A  Column B  
(1) NABARD  (a) Apex institute for rural  credit  
(2) RBI  (b) Established in 1975  
(3) AXIS Bank  (c) Established in July 1982  
(4) IDBI  (d) Not an institution for  credit.  

 

A 1 – (a) Loan taken from:

B 2 – (b) Commerical Banks

C 3 – (c) Regional Rural Banks

D 4 – (d) Cooperatives

View Answer

 

Q5

Which of the following is not an institutional credit agency?

A Co-operative Societies

B Commercial and Regional Rural Banks

C NABARD

D Desi Banker

View Answer
  1. Class 12 NCERT
  2. Indian Economic Development

Transcript

Why do Farmers need Credit? They need money to meet different expenses During Gestation period in Agriculture What is Gestation Period in Agriculture Example Suppose I start Farming Business I grow crop today When can I realize Income? No It will take few months For crop to grow and harvest  This Period is Called Gestation Period It is time between Date of Sowing and Date of Realisation of Income For what expenses do Farmers need Credit? They need money to meet different expenses During Gestation period Different Expenses on Agriculture Inputs Different Personal Expenses Farmer need money for Purchasing Agriculture Inputs (goods which are used For Purpose of Agriculture) To meet personal day to day expenses also ,Farmers borrow funds. Condition of Agricultural Credit at time of Independence Farmer Need Money Approach Money Lenders/Traders They charge High Interest Manipulate Accounts In Normal Crop Difficult to pay due to High interest In case of Crop Failure Farmer Unable to Repay No Money left to Repay loan Farmer commit Suicide Now Debt to be Paid by Children This is Called Debt Trap Of Farmers Measures taken by Govt to Improve Agriculture Credit EARLIER Loan taken from Moneylenders/ Traders (Banks did not offer loans) High Rate of interest Charged by Moneylenders Lending for Personal Purpose (Loan taken for Daughters Wedding, Illness) FROM 1969 Loan taken from Banks like: Commercial Banks Regional Rural Banks Cooperatives Land Development Banks Self Help Groups (SHG) Concept of Social Banking Bank subsidizes Interest Rate to serve masses Product Oriented Lending (Loan taken to Purchase Agriculture Inputs to Grow Crops) All these are Coordinated by NABARD What are Self Help Groups A group of people helping each other in case of needs These are also called Micro Credit Organizations Example Suppose there are 5 Members in Group Each Member Contribute 2000 each Member 1 2000 Member 2 2000 Member 3 2000 Member 4 2000 Member 5 2000 Total Amt contributed 10000 + Assistance By Govt 15000* Total Funds Available 25000 This Money is Available to any of 5 members in case of need *How much Does Govt Contribute? Around 10000-15000 per SHG + 250000 (Community Investment Support Fund) Criticisms(or Drawbacks) of Rural Banking Systems in India What was the Government Policy Loans at Low Interest Rates Social Banking Loan of Farmers Waived during Elections Taking Loan Was Encouraged Savings not encouraged (Reforms of 1991 focused on Industry and Service, Not Agriculture What was the Drawback/Effect High Agriculture Default Rates Farmers do not repay loans (Some because of genuine reason like Crop Failure) Some deliberately (Loan waiver Scheme of political Parties) No Deposit MOBILISATION Farmers do not save money and keep in banks If they kept this money in banks, Deposits of banks will increase and they could give more loans Lack of Expansion and Promotion of Rural Banking Reforms made in 1991 did not focus on expansion of rural banking Hence, there are lack of banks and credit facilities in remote areas

About the Author

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CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 10 years. He also provides Accounts Tax GST Training in Delhi and Pune.