Agriculture collection and interpretation. 9 Table 6.1. Problem faced

Agriculture Finance in

Issues and Challenges

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!

order now






Submitted By:

Pratibha Mishra (16020242030)

MBA Agribusiness 2016-18



Symbiosis Institute of
International Business


Under the guidance of

Dr. Nisha Bharti (SIIB, Pune)








1.     Acknowledgement. 3
2.     Introduction. 4
3.     Nature and scope: 5
4.     Review of Literature. 6
5.     Objective. 8
6.     Hypothesis. 9
7.     Methodology. 9
8.     Data collection and interpretation. 9
Table 6.1.   Problem faced by marginal and small
farmers (Rank wise) 9
Table 6.2.  Problem faced by medium farmers (Rank
wise) 10
Table 6.3.  Problem faced by big farmers (Rank
wise) 10
Table 6.4. Total Agricultural Advances (in crores) 10
9.     Conclusions and findings. 11
10.        Appendix. 11

















1.  Acknowledgement


The project on “Agriculture Finance: Issues and
would not have seen the light of the day without the accompanying individuals
and their extremely valuable support and participation.

It is indeed a
moment of immense gratification for me to express my deepest gratitude to Mrs. Asmita Chitnis, Director of
Symbiosis Institute of International Business and  Dr.
Nisha Bharti for providing me with an opportunity to carry out this project
and for her guidance and encouragement, to study and help me create this

Regardless of their bustling
calendar they generally discovered time to guide me all through. I am
additionally thankful to them for resting trust in my capacities and giving me
the opportunity. 


Thank You!
















2.  Introduction


Agriculture plays a vital role in the overall
growth of the Indian economy. More than 72% of the Indian population is
directly or indirectly dependent on the agriculture. Agriculture Finance is one
of the important inputs of the agriculture. So, to boost the Indian economy and
contribute more to the GDP, it is important to enhance the condition of the
agricultural finance. This report would cover a brief of all the challenges and
issues faced by the rural people and the farmers of India in order to avail the
agricultural credit and the loans.

With the progress of the Indian economy,
exceptionally after the focus is on the attainment of sustainable progress,
there must be an attempt to include maximum number of participation from all
the sections of the society. But the lack of awareness and commercial literacy
among the rural population of the state is affecting the development of the
economy as rural population does not have access to formal credit. So, to
overcome such barriers, the banking sector came up with some technological
innovations such as automated teller mechanisms (ATM), credit and debit cards,
internet banking, etc. Nevertheless introduction of such banking technologies
has brought a change in the country, rural population is still unaware of these
adjustments and is excluded from formal banking.

Measures such as SHG-bank linkage program, use
of business facilitators and correspondents, easing of Know Your Customer (KYC)
norms, electronic benefit transfer, separate plan for urban financial
inclusion, use of mobile technology, bank branches and ATMs, opening and
encouraging ‘no-frill-accounts’ and emphasis on financial literacy have played
a significant role for increasing the use of formal sources for availing loan/
credit. Measures taken by the government include, opening customer service centres,
credit counselling centres, Kisan Credit Card, Mahatma Gandhi National Rural
Employment Guarantee Scheme and Aadhar Scheme.

Agricultural credit needs can be classified in
three categories:

1. Short term

2. Medium term

3. Long term

Short term needs varies between 3 months to 15
months it is seasonal and for purchasing of seeds, fertilizers, pesticides and
payment of wages and operational expenses. This type of need is mostly required
by all farmers.

Medium term needs varies between 15 months to
5 years for the purchase of cattle, small agricultural implements, repairs and
constructional wells etc.

Long term needs are required for the permanent
improvement on lands , digging tube wells, purchase of larger agricultural
implements and machinery like tractor, harvesters etc and repayment of old
debts . The period of such credit extends beyond 5 years. Commercial banks
provide two types of loan i.e. crop loan and investment loan. Crop loan is a
short term loan, stands due for repayment immediately after the harvesting of
the crop whereas investment loan is a long term loan required for the purposes
of capital formation on land.

Sources of agricultural credits

The various sources of agricultural credit can
be classified in two groups.

1) Non Institutional Agencies

2) Institutional Agencies

Non institutional agencies include the local
village money lender and their agents and

landlords. Institutional agencies includes
cooperatives societies, commercial banks regional

rural banks and NABARD

3. Nature and scope:


Agricultural finance is studied at both micro and macro level.
Macro finance deals with different sources of raising funds for agriculture as
a whole in the economy. It is also concerned with the lending procedure, rules,
regulations, monitoring and controlling of different agricultural credit
institutions. Hence macro-finance is related to financing of agriculture at an
aggregate level.

Micro-finance refers to financial management of the individual
farm business units. And it is concerned with the study as to how the individual
farmer considers various sources of credit, quantum of credit to be borrowed
from each source and how he allocates the same among the alternative uses with
in the farm. It is also concerned with the future use of funds.

Therefore, macro-finance deals with
the aspects relating to total credit needs of the agricultural sector, the
terms and conditions under which the credit is available and the method of use
of total credit for the development of agriculture, while micro-finance refers
to the financial management of individual farm business.

needs in Agriculture:

Agricultural credit is one
of the most crucial inputs in all agricultural development programmes. For a
long time, the major source of agricultural credit was private moneylenders.
But this source of credit was inadequate, highly expensive and exploitative. To
curtail this, a multi-agency approach consisting of cooperatives, commercial
banks ands regional rural banks credit has been adopted to provide cheaper,
timely and adequate credit to farmers.

The financial requirements
of the Indian farmers are for,

1. Buying agricultural
inputs like seeds, fertilizers, plant protection chemicals, feed  and fodder for cattle etc.

2. Supporting their
families in those years when the crops have not been good.

3. Buying additional land,
to make improvements on the existing land, to clear old debt and purchase
costly agricultural machinery.

4. Increasing the farm
efficiency as against limiting resources i.e. hiring of irrigation water
lifting devices, labour and machinery.

4.  Review of Literature


RBI (2005) proposed financial inclusion based
on the business facilitators, adapting the Brazilian success story in India. In
2005, efforts were made by RBI for enabling banking services to reach the rural
areas through credit facilities.

Kamath (2008) attempted to understand the
impact of Micro-Finance Institution (MFI) loans on daily household cash flows
by analysing cash inflow and outflow patterns of borrowers of MFI and comparing
with non-MFI households. MFI was proved to be the most important and easy money
lending platform for the rural population.

Kannan, E (2011), Researcher discovered that
the disbursement of credit across established origins had a great impact on
improving agricultural productivity. Though, it points at its inadequacy and
thereby urges for widening its coverage both in terms of the number of credit
and the coverage of more marginal and small farmers.

CRISIL (2013) measured the extent of financial
inclusion in India in the form of an index. It makes use of the non-monetary
aggregates for calculating financial inclusion. The parameters used by the
CRISIL Inclusix took into account the number of individuals having access to
various financial services rather than focusing on the loan amount. The three
parameters of the index were branch, deposit and credit penetration. These
parameters were updated annually and based on the availability of data, additional
services such as insurance and microfinance were added. The key findings of the
report were as follows: one in two Indians has a savings account and only one
in seven Indians has access to banking credit.

RBI (2014a) focused on the provision of financial
Services to the small businesses and low income households. Among the main
motives of the committee included designing principles for maximum financial
inclusion and financial deepening and also framing policies for monitoring the
progress in the development of financial inclusion in India. Thus, in order to
achieve the goal of maximum financial inclusion and increased access to
financial inclusion the committee proposed the following measures: provision of
full-service electronic bank account; distribution of Electronic Payment Access
Points for easy deposit and withdrawal facilities; provision of credit
products, investment and deposit products, insurance and risk management
products by formal institutions. The main findings of the report highlighted
the following key issues. First, the majority of the small businesses were
operating without the help of formal financial institutions. Second, more than
half of the rural and urban population did not have access to bank account.
Third, savings in terms of GDP have declined in 2011-12. To address these
issues, the Committee recommended that each individual should have Universal
Electronic Bank Account while registering for an Aadhar card. The committee
also proposed for setting up of payments banks with the purpose of providing
payments services and deposit products to small businesses and low income
households. Also banks should purchase portfolio insurance which will help in
managing their credit exposures. Further, the Committee recommended for setting
up of a State Finance Regulatory Commission where all the state level financial
regulators will work together. For the interest of the bank account holders,
the committee recommended for the creation of Financial Redress Agency (FRA)
for customer grievance redress across all financial products and services which
would coordinate with the respective regulator.

RBI (2014b) presented a report to study
various challenges and evaluate alternatives in the domain of technology that
can help large scale expansion of mobile banking across the country. The report
divided the challenges into 2 broad categories – Customer enrolment related
issues and Technical issues. Customer enrolment related issues include mobile
number registration, M-PIN (mobile pin) generation process, concerns relating
to security as a factor affecting on-boarding of customers, education of bank’s
staff and customer education. On the other hand, technical issues include
access channels for transactions, cumbersome transaction process, and
coordination with MNOs (Mobile Network Operators) in a mobile banking
eco-system. The report has a detailed comparison of four channels of mobile
banking – SMS (Short Message Service), USSD (Unstructured Supplementary Service
Data), IVRS (Interactive Voice Response System) and Mobile Banking Application,
and evaluates each one of them based on accessibility, security and usability.
To resolve the different problems identified, the report suggests to develop a
common mobile application, using SMS and GPRS channels, for all banks and
telecom operators. The aforementioned application should enable the user to
perform basic mobile banking operations such as enquiring his/her account balance,
transfer and remittance of money. The application is expected to be developed
in such a way that it provides a simple menu driven, interactive interface to
the user. Such an application can be developed by combined efforts of telecom
operators and banks. The application can be embedded on all new SIM cards, so
that any person buying a new card has a preinstalled application. For customers
already using SIM cards, the application can be transferred “over the air”
(OTA) using a dynamic STK (SIM Application Tool Kit) facility.

Siddharth Mishra (2014), the researcher
studies that trend of agricultural finance by commercial banks: A case study of
Union Bank of India, Bank of Baroda and State Bank of India. This study is
based on secondary data. The researcher evaluate that the performance of UBI
has not been satisfactory as the agricultural advances. The advances given by
BOB and SBI had increased, during the study period.

Seena P. C. (2015) this paper describes the
management of agricultural credit in India and the impact of various banking
sector reforms on agriculture. She concluded that performance of agricultural
credit in India reveals that though the overall flow of institutional credit
has increased over the years, there are several gaps in the system like
inadequate provision of credit to small and marginal farmers, limited deposit
mobilization and heavy dependence on borrowed funds .Efforts are required to
address and rectify these issues. Banking sector reforms like fixing prudential
norms, reduced SLR, CRR, banking diversification all affect the Indian
agricultural sector.

Various studies conducted and numerous
suggestions were sought to bring effectiveness in the working and operations of
financial institutions. Narsimham Committee (1991) emphasized on capital
adequacy and liquidity, Padamanabhan Committee (1995) suggested CAMEL rating
(in the form of ratios) to evaluate financial and operational efficiency,
Tarapore Committee (1997) talked about Non-performing assets and asset quality,
Kannan Committee (1998) opined about working capital and lending methods, Basel
committee (1998 and revised in 2001) recommended capital adequacy norms and
risk management measures. Kapoor Committee (1998) recommended for credit
delivery system and credit guarantee and Verma Committee (1999) recommended
seven parameters (ratios) to judge financial performance and several other
committees constituted by Reserve Bank of India to bring reforms in the banking
sector by emphasizing on the improvement in the financial health of the banks.
Experts suggested various tools and techniques for effective analysis and
interpretation of the financial and operational aspects of the financial
institutions specifically banks. These have focus on the analysis of financial
viability and credit worthiness of money lending institutions with a view to
predict corporate failures and incipient incidence of bankruptcy among these


5.  Objective


a)      The objective of the study is to study about
the challenges and issues faced by the rural India and the farmers for the
credit facilities and to understand the agricultural finance in India

b)      Banks are providing rural credit in lesser
interest rates but, small farmers are unable to access them because of the
inflexibility and delay, high transaction cost, borrower-unfriendly procedures

c)       RBI has also included SHGs under the priority
sector lending. The overall objective would be to analyze the problems faced by
the rural population and give the proper solutions in order to improve their
condition. The objective would also to study the disbursement activities and
process of achieving the target by the Banks and the MFIs.

6.  Hypothesis

The hypothesis of the dissertation would be to
check whether there is a significant difference in the agricultural credit and
financing system by the actions taken by the government and the financial

7.  Methodology

The study will be based on both primary
secondary research. The primary data has been collected from the rural areas
near to Pune. The secondary data has been obtained from the concerned banks
through the annual publications, relevant records and the documents. The data
has also been collected from the Ministry of agriculture, Census 2011, articles
and research papers etc.

8.  Data
collection and interpretation

Data are analyzed in three categories

Problems of marginal and small farmers

problems of medium farmers

problems of big farmers.

Almost all marginal and small farmers
responded about problems and there high rank problems are – high rate of
interest on loan, lack of financial knowledge about bank products and plans and
cumbersome process of getting loans and lack of security and collateral.

Medium farmers face problems such as
cumbersome process of getting loan, lack of financial knowledge and high rate
of interest. Sometime bank staffs are also not cooperative.

Large farmers also face these problems but
less than the small and marginal farmers.

Table 6.1.   Problem
faced by marginal and small farmers (Rank wise)


rate of interest on loan I
of financial knowledge II
process of getting loan III
staff is not cooperative IV
of security of collateral V
factor about recovery process VI



Table 6.2.  Problem
faced by medium farmers (Rank wise)


process of getting loan I
rate of interest on loan II
of financial knowledge III
staff is not cooperative IV
factor about recovery process V


Table 6.3.  Problem
faced by big farmers (Rank wise)

process of getting loan I
staff is not cooperative II
of entrepreneurship in agriculture sector III
rate of interest on loan IV
amount is not sufficient V


6.4. Total Agricultural Advances (in crores)


Total agricultural advances (Rs)

Total Agricultural Advances (%)


































9.  Conclusions
and findings


The above
table and figure represents the trend percentages of total agriculture advances
by Central

Bank of
India for the period 2009-10 to 2014-15. Here, for the calculation of trend percentage
statement, the initial year 2009-10 has been consider as base year. In case of
total agriculture advance

100% in
the base year (2009-10). Which is increased to 254.31% in the year 2015-16. So,
from this data, it can be summarised that agricultural advances increased
154.31% during this period. It indicated that bank should try to provide more
advances to agriculture sector.

It can be
concluded that the Government is taking apt actions for the growth of Indian
economy and so it is helping rural population to grow more.















Questionnaire on Agriculture finance: Issues
and challenges



1. Questionnaire





2. Name





3. Location


Check all that apply.







4. Address














5. Gender


Mark only one oval.









6. Age


Mark only one oval.








45 and










                                                              Questionnaire on Agriculture finance: Issues
and challenges


7. Education


Mark only one oval.













8. How much
land do you own?





9. Any land
on lease/ rent? Check
all that apply.







10. If yes,
how much?





11. No. of





12. Earning
members in family





13. Kind of












14. Any


Mark only one oval.







15. If yes,
how much and from where?





16. Reason
for loan?




                                                              Questionnaire on Agriculture finance: Issues
and challenges


17. Are you
able to pay loan on time? Mark only one oval.







18. Mode of
repayment? Mark
only one oval.









19. What is
your opinion regarding behavior of bank executives and employees?











20. Barriers
for savings


Lack of


Lack of




trust the financial institution



21. Problems
faced by the rural population


interest rate


Lack of knowledge


process of getting loan


staffs not cooperative


Lack of
security/ collateral


Fear of