Farm credit surges, so does moneylenders' domination
The number of farmers borrowing from moneylenders has risen to levels not seen since independence, despite doubling of agricultural credit in recent years and several efforts from the government towards financial inclusion.
Just one in every seven marginal farmers has access to institutional credit, says a study on agricultural indebtedness. About 38% of these loans carry interest rates of 30% or more, while another 36% cost anywhere between 20% and 25%. The implications are predictable - impoverishment, distress migration and, sometimes, suicide.
A task force led by Nabard chairman UC Sarangi has come up with some far-reaching suggestions to ensure that the country's small and marginal farmers have access to institutional credit on "reasonable terms and reasonable rates". It submitted its report to the agriculture ministry recently.
The committee was set up after the 2008 Agricultural Debt Waiver and Debt Relief schemes, where the government waived farm loans amounting to `65, 000 crore. One criticism of the schemes had been that only a small proportion of farm households borrows from formal sources, and that all the others were consequently excluded from the scheme's purview.
Accordingly, in October, 2009, the Sarangi committee was constituted to study how "all categories of farmers, more particularly small and marginal farmers, tenant farmers, sharecroppers and oral lessees" could be brought within the institutional credit fold in order to reduce their dependence on informal credit sources.
Among others, his committee has suggested that the government extend joint and individual loans to small farmers (tenant farmers, sharecroppers, etc) currently outside the ambit of institutional finance via Joint Liability Groups (which are like Self Help Groups) and thrift and credit cooperatives. Then, existing laws regulating landholdings, etc, prevent farmers, especially tenant farmers and sharecroppers, from obtaining hassle-free credit from the formal banking channels, need to be amended.
Also, recognising that the growing indebtedness of farmers is a symptom of a deeper agrarian crisis, the report argues that interventions focusing solely on farmers' debts may not be adequate. Accordingly, it suggests that "as a parallel to the subsidies available to those engaged in chemical input oriented farming, the government of India devise ways to provide incentives to those choosing to engage in more sustainable farming". Additionally, to protect farmers, it has suggested reforms in insurance. For instance, it says crop insurance should protect farmers against loss of revenue, not against loss of investment as is the case today.
The committee has also recommended that states' ineffective moneylending Acts be overhauled. These, it says, are ill-equipped to deal with the complexity of the rural credit landscape. For instance, moneylender come in varied forms - outright lenders, suppliers of inputs, buyers of produce, for-profit NBFCs, the owner of the land on which the farmer is dependent.
Apart from that, the report has flagged weaknesses in some of the newer models of credit delivery - like microfinance and the Kisan Credit Cards. On the microfinance institutions (MFIs), the report says new moneylending laws should expand the definition of "moneylender" to include closely-held, for-profit MFIs. It also recommends such MFIs be excluded from priority sector lending benefits as it is difficult to ascertain if the loans indeed reached those they were meant to reach.
As for the Kisan Credit Cards, while these reach out to small and medium farmers with loans at a net cost of 5%, the report says farmers are not happy with credit limits, etc.
On the whole, the Report of the Task Force on Credit Related Issues of farmers paints a bleak picture. On the whole, the share of non-institutional sources in the debt of cultivator households has risen from 30.6% in 1991 to 38.6% in 2002. The share of moneylenders, specifically, in the debt held by these households, has risen from 17.5% (1991) to 26.8% (2002). The smaller the farmer, says the report, the greater his/her reliance on informal sources.
According to the report, this jump in demand for informal finance is partly due to the "constriction in the rural banking network and services arising out of financial sector reforms" and "archaic state-level cooperatives laws" that have controlled and restricted cooperatives. On one hand, it says, while the number of commercial bank branches has been rising since 1969, the number of rural bank offices has been declining since 1990. At the same time, the share of co-operatives in agricultural credit disbursement has been crashing. In 1991-92, cooperatives accounted for over half of all agricultural credit disbursals. By 2008-09, their share was down to 13%.
While this shortfall was picked up by commercial banks, whose share in disbursals rose to 78% in 2008-09, the report says the "rigid" procedures and systems of formal credit prevented easy access by small and marginal farmers. In contrast, informal sources follow easier and more flexible methods of lending.
This has created a situation where, says the report, despite the doubling of agricultural credit between 2004-05 and 2006-07, the gap between the demand and availability of agricultural credit continues to be huge.
That said, the report leaves some questions unanswered. For instance, it leaves the communities dependent on livestock, etc, entirely out of its purview.
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Article Source: ArticlesBase.com
