Rural Banking BBA II YEAR Unit II Rural Credit: Concept, need, objectives, features, sources, significance and role in rural development; Types of Rural Credit: Agriculture credit, non-agriculture credit; MSME credit, credit for allied activities; Microfinance: concept, importance and role in poverty reduction and women empowerment. evaluation of performance of microfinance in rural India. Keywords Rural Credit, Micro finance, non-agriculture credit, SMSE, Women Empowerment. Rural Credit Rural economy growth generally depends on the funds from one interval to another to understand the high-rise productivity in nonagriculture and agriculture areas. The interval gap from sowing seeds to understanding the post-production revenue is comparatively long. Farmers lend money from different fronts to match the primary investment on fertilisers, seeds, tools, and other personal expenses. Post independence, traders and moneylenders took advantage of poor peasants and landless workers by lending money to them at huge interest rates and also influencing their accounts and trapping them. Rural Credit In the year 1969, India started social banking and different agencies who could provide funds to satisfy the requirements of rural credit. Later in the year 1982, National Bank for Agriculture and Rural Development (NABARD) was formed as an apex body to regulate and organise all the financial activities concerning the rural financial system. This became more concrete when the Green Revolution came and changed the credit system of the country, resulting in a productive lead of rural credit. Today, rural banking includes a set of various financial institutions, particularly regional rural banks (RRBs), cooperatives, commercial banks, self-help groups, and land development banks. They assign sufficient credit at cheaper interest rates. Types of Rural Credits Short-term loan/credit: A short-term loan is one kind of rural credit that is taken for a brief private or business capital requirement. It is a type of credit that requires a borrowed principal amount and interest percentage to be repaid at a given date, the course of which may be maximum up to one year. A short term loan is a worthy but an expensive option, particularly for small companies or basically for startups that are still not qualified for a credit line from a bank. Types of Rural Credits Medium-term loan/credit: A medium-term loan is the loan that has a repayment duration between 2 to 5 years or less than 10 years. Medium-term loans are an excellent option for small firms that are looking for a traditional way of credit with a set repayment duration and anticipated amounts. The loan amount an individual receives may differ based on the cash flow, credit rating, and various other factors. Types of Rural Credits Long-term loan/credit: The repayment duration of a long-term loan is usually 5 to 20 years or even more in a few exceptional cases. In any business, long-term finance is essential to create permanent assets that will return over a period of time. Especially in the agriculture sector, long-term investment comprises land levelling, fencing, sinking wells, permanent repairs on land, acquisition of heavy machinery such as tractors, etc. All the suggested long-term investments need large numbers of funds. Although they have a considerable potential to give profits in the future, private farmers do not have the money to make such costly investments as they either have no savings or have very little savings. Sources and Types of Rural Credit The rapid increase in the banking sector particularly after the green revolution, the rural sector had a positive impact on farming and non-farming output, employment, and income. These banking opportunities allowed farmers to take different credit services, facilities and various loans to meet their production requirements. Here are a few major credit sources of rural credit in India. 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. They started supporting the farmers in a significant way with short-term loans issued by Primary Agricultural Credit Societies (PACs), which progressed from ₹305 crores in 1965-66 to ₹5,200 crores in 1999-00. At the same time, the loans granted raised from ₹37 crores to ₹2,100 crores. However, the co-operatives could not meet the credit needs completely, so the moneylenders kept on controlling the rural economic markets. Sources and Types of Rural Credit Land Development Bank- This source of credit is also known as a land mortgage. 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 type 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 bank has 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. Sources and Types of Rural Credit Commercial Banks- Earlier, these banks were 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 advances form 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. Sources and Types of Rural Credit 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 artesian. The Government- The Government provides short and long term goals to farmers if there is an emergency like famine and flood. These type of loans are also known as Taccavo loans. Rural Credit is needed for the following reasons (Importance) (1) Long gestation period The gestation period between sowing crops and understanding income after the agricultural produce and sale is very long. Therefore, the farmers need to take credit. (2) To buy inputs Farmers need money to buy seeds, fertilisers, tools, etc. (3) Personal expenses They need money for personal expenses like marriage, death, religious ceremonies, to repay old debts, etc. Role of Rural Banking in Rural Development Source of Agricultural Credit Institutional Source of Credit Non- Institutional Source of Credit Objectives of Rural Credit The objective of rural credit is to develop the rural economy by providing credit and other facilities for agriculture and other productive activities in rural areas. They provide these facilities to small and marginal farmers, rural artisans, agricultural laborer's and other small entrepreneurs working in the rural areas. Objectives of Rural Credit To provide loan for backward class public To save the rural poor from the moneylenders. To cultivate the banking habits among the rural people To mobilize savings for the economic development of rural areas. To increase employment opportunities by encouraging trade and commerce in rural areas. To encourage entrepreneurship in rural areas. To cater to the needs of the backward areas To develop underdeveloped regions and thereby strive to remove economic disparity between regions. To increase employment opportunities by encouraging trade and commerce in rural areas. The Features of Rural Credit can be summarized as follows The area of operation of a rural credit is limited to a specified region which comprises of one or more districts. These banks cannot have a lending rate which is higher than the prevailing lending rate of cooperative credit societies in any particular state. It grants loans and advance only to the small and marginal farmers, agricultural laborer's, small traders\ entrepreneurs. This is sponsored bank. It is sponsored by a scheduled commercial bank. The interest rates as adopted by the co-operative society in the state. Functions of Rural Credit Providing of loans and advance to the farmers and other person already engaged in agriculture activities. Providing of loans and advance to the co-operative societies and other society which are involved in agriculture processing . Accepting the various types of deposits from the rural and other connected areas. providing loans and advances to small entrepreneurs and others who are engaged in trade, commerce and industry. Setting up and Maintenance of godowns and warehouse. Reducing the dependency of weaker section of money lenders. Undertaking of the supply of agricultural inputs & equipment's to farmers. Making backward and tribal areas economically better by opening new branches and extending micro credit facilities and operating the scheme of inclusion. Microfinance Microfinance, also called microcredit, is a type of banking service provided to unemployed or low-income individuals or groups who otherwise would have no other access to financial services. While institutions participating in the area of microfinance most often provide lending many banks offer additional services such as checking and savings accounts as well as microinsurance products, and some even provide financial and business education. The goal of microfinance is to ultimately give impoverished people an opportunity to become self-sufficient. Microfinance and its facts: Microfinance is an essential part of rural finance. It does not require any collateral. The purpose of microfinance is to lend a helpful hand towards needy / low income people. A small amount ranging from Rs. 20,000 to Rs. 30,000 is availed. The tenure of the loan is really short as the amount of loan is too small. It focusses to generate income for the poor people. It is more service oriented and less profit oriented. It is one of the most effective and warranted Poverty Alleviation Strategies. It is provided through the NGOs, generally referred Self Help Groups (SHGs). Conduct research on demand for finance and savings behavior of borrowers to determine the mix of multipurpose loans. Top 10 Microfinance institutions in India 1. State Bank of India 2. Ujjivan Financial Services 3. Equitas Small Finance Bank Ltd. 4. M&M Financial Services 5. Sundaram Finance Ltd 6. Bandhan Financial Services 7. Bharat Financial Inclusion Ltd 8. Muthoot Microfin Ltd 9. Janalakshmi Financial Services 10. MUDRA Bank Benefits of Microfinance As per the World Bank estimates, more than 500 million people have improved their economic conditions via microfinance-related entities. Also, the International Finance Corporation (IFC) estimated that, as of 2014, over 130 million people were directly benefited from the microfinance-related operations. But, approximately only 20% of the three billion people who fall under the category of the world’s poor can avail these microfinance operations. IFC also helped in establishing or improving the credit reporting bureaus in 30 developing nations. Microfinance is also a source of capital for the people. It also empowers women in particular, which may lead to more stability and prosperity for families. Importance Of Microfinance In India The concept of microfinance has been highlighted since 1970s with an aim to uplift the poor section of the society and to enhance economic growth. Its importance has been amplified amidst global financial crisis when trust into formal banking system is shaken. Microfinance in India plays a major role in the development of India. It act as an antipoverty vaccine for the people living in rural areas. It aims at assisting communities of the economically excluded to achieve greater level of asset creation and income security at the household and community level. The utmost significance of microfinance in India is that it dispenses the access to the capital to small entrepreneurs. As it has been discussed above that microfinance in India is providing loans, insurance, access to savings accounts. The concept of microfinance focuses on women also by granting them loans. It act as a tool for the empowerment of poor women as women are becoming independent, they are able to contribute directly to the well beings of their families and are able to confront all the gender inequalities. The major targets of microfinance are the poor rural and urban households and women too. The Reserve Bank Of India imparts no ceiling with respect to minimum and maximum amounts to be given as loan. Importance Of Microfinance In India Credit is important to the poor people for maintaining the common imbalance in between the income and their expenditure. It is also vital to the poor people for the income generating activities like investing in marginal farms and other small scale self employment ventures. Their access to formal banking channels are low due to the lack of resources an nature of formal credit institutions. Consequently in India, Microfinance institutions and self help groups are leading to other traditional banking channels as they are catering the need of credit to poor people. It has contribute a lot in enhancing the quality of life of the poor people. Therefore microfinance is not a financial system but a tool to allievate poverty from the country and bring social change and especially to uplift the status of women in our country so they can become self reliance. There is a public interest the interest of microfinance and this is what makes it acceptable as valid goal for public policy.
