NABARD Grade A Important ARD Topic: Institutional Financing Agencies


NABARD Grade A is not an easy nut to crack. To be able to clear this exam one needs to have the entire knowledge of ESI and ARD and that too by heart. Agriculture and Rural Development holds significant weight in both phases (phase 1 and phase 2) of NABARD. Agriculture and Rural Development is an important part of NABARD Grade-A and Grade-B Exams. The section comprises various topics related to the country’s financial system. To score good marks in the paper, candidates require extensive knowledge in the field of agricultural finance. To help you prepare better, we have come up with free NABARD agriculture notes. Here we are discussing the different institutional financing agencies that credit finance to farmers to meet their short-term and long-term needs. Read below to know all about it.

Institutional Financing Agencies

Financial institutions are responsible for supplying money to the market or to the individuals in the form of loans/credit for a certain period. The loan or credit taken by the farmer can be used to meet their short-term, medium-term, and long-term needs.

Institutional Financing Agencies for Agriculture Sector

Agricultural finance, particularly institutional agricultural finance, has gained more importance than ever before. To increase productivity and production, a variety of fertilizers, seeds, fungicides, and insecticides need to be used. Some people may not have the resources to purchase them, this is when they turn to certain institutions to finance their needs.

Non-Institutional and Institutional Agencies of rural credit in India

Since India’s independence, the main objective of the nation’s agricultural policy has been to improve farmers’ access to institutional credit and reduce their dependence on informal credit. Informal credit is often usurious. In pursuit of this goal, the government of India has undertaken several initiatives. For example, major milestones in improving access to rural farm credit include acceptance of the Rural Credit Survey Committee report (1954), nationalization of the large commercial banks (1969 and 1980), establishment of Regional Rural Banks (1975) and the National Bank for Agriculture and Rural Development (1982), and the 1991 financial sector reforms. Since the passage of the historic 1991 financial reforms in India, the government has also launched farm credit programs including the Special Agricultural Credit Plan (1994–1995), Kisan Credit Cards (1998–1999), the Doubling Agricultural Credit program (2004), the Agricultural Debt Waiver and Debt Relief Scheme (2008), the Interest Subvention Scheme (2010–2011), and, more recently, the 2014 Pradhan Mantri Jan Dhan Yojana.

Institutional sources include loans given by co-operatives, commercial banks including the SBI Group and RBI. While non-institutional include moneylenders, traders and commission agents, relatives and landlords.

Institutional Agencies


In India, the Government has been providing loans to agriculturists under the Land Improvement Act, 1883 and the Agriculturists Loans Act of 1884. Since Independence, the Government has also been giving loans under schemes like Grow More Food as well as the schemes for the rehabilitation of displaced persons from Pakistan. Many of these loans are called Taccavi loans. Such loans are generally given whenever there is a flood or famine in the country. Taccavi loan was a short term loan given to poor farmers to purchase seeds, fertilizers, equipment’s and for other agriculture purposes. This was introduced to enhance productivity of crop cultivation and help poor farmers to increase the income.

It was introduced in the late 1950s.

However, the concept failed to take off as most benefit was being absorbed by well-to-do farmers and the service could not reach the poor farmers.

Co-Operative Credit Societies

This source of credit is the most economical and important source of rural credit. It was set up with the aim of facilitating the complete credit needs for small and me­dium farmers. Co-operative Credit Societies progressed steadily after a few years for inception. The co-operative societies play a negligible role in providing credit to the farmers, because they give only 3.1% of the total requirement of credit to the farmers. However, in 1961-62, they contributed 15.5% of the total rural credit. During 1977-78 the cooperatives provided short and medium- term credit amounting to Rs. 982 crores and long-term credit of Rs.212 crores. Short term and medium term credit is provided by agricultural credit cooperatives which numbered 1,7400 people in 1977-78 and had a membership of 3.7 crores persons.However, the co-operatives could not meet the credit needs completely, so the moneylenders kept on controlling the rural economic markets.

Land Mortgage Banks

As the co-operative societies do not provide long-term loans, such loans are provided by the land mortgage banks. They are called land mortgage banks because they give loans on the security of land which is mortgaged to the societies. It essentially gives farmers a long-term loan option upon the mortgage of their land at low-interest rates over a period of 15 to 20 years. These types of loans are usually taken if the farmers have some land developments, work or digging of wells, etc, if extra land is to be taken through out-and-out purchase, or if previous dues are to be repaid. Though land development banks have made notable progress still the contribution is insignificant because most of the farmers are not aware of the existence of such land schemes or the importance and use of such banks. However, such a bank set up by the primary banks and the government has increased immensely over the years.

Commercial Banks

Earlier, these banks only received deposits from the urban population and issued loans only for trade and industry. They generally neglected agriculture and rural industries because by nature agricul­ture is a high-risk venture. However, today these banks give both direct and indirect investment to agriculture. Here, direct finance is issued for a small and medium term allowing farmers to conduct agricultural operations easily. Indirect finance is given in advance to purchase things like grains and fertilis­ers. Commercial banks also grant finance to the Food Corporation of India, and State food agencies for operations like food procurement. These banks also give credit options for stocking and delivery of agricultural inputs. They have also executed the ‘village adop­tion scheme’, firstly initiated by the State Bank of India, to examine into credit and additional requirements of the farmers.

Regional Rural Banks

Government initiated regional rural bank was set up to examine the specific needs of landless workers, small and mar­ginal farmers, rural poor and artisan.

Non-Institutional Agencies


The loans taken by farmers from their relatives amounted to 14.2% of their total requirements of rural credit in 1951-52 and 8.8% in 1961-62. By definition, all these loans are free of interest. Their terms of repayment are also more liberal.

Moneylenders (Professional and Agricultural)

The moneylenders pro­vided 697% of the total requirements of rural credit in 1951-52 and 49.2% in 1961-62 and 279% in 1971-72. The great importance of the money-lenders has been due to the failure of other agencies. As compared to the institutional agencies the money-lender enjoys a number of advantages.

Others (like Traders, Commission Agents, Landlords, etc.)

The share of the others was 8.8% of the total rural credit in 1951-52 and it rose to 22.3% in 1961-62 which fell to 14.3% in 1971-72. The share of landlords is declining particularly due to the abolition of zamindari from the–country. The traders advance loans against the future. Drop at a low rate of interest but pay a very low price for the crop resulting in loss to the farmers.

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Also read:

NABARD Grade A/B Important ESI Topic: Inflation? How is it measured?

Types of Cropping System

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