Agricultural Finance – Changing the face of agriculture

Agricultural finance is available to farmers for a variety of reasons relating to agricultural needs. There are many lenders providing agri loans or agri finance to farmers to fund their farming investment requirements. The micro-finance sector has also rapidly developed over the last two decades and has made agri finance available to many poor and low-income micro-entrepreneurs, including in some cases, even farmers and agriculturists. However, in most cases, the micro-finance sector has lagged behind in providing credit to the rural poor and their agricultural activities as smallholders.

Need for Agri loan in Agriculture –

Three-quarters of the people of India live in rural areas and they depend on agriculture and allied activities, either directly or indirectly, for their livelihoods. Some competent sources indicate that while between 60% and 90% of rural households derive their livelihoods from agriculture and related activities, the income obtained from agriculture and allied activities is rarely the only source of income. Most of these individuals in rural households also supplement the income they derive from agricultural and allied activities by earning wages in the agricultural sector or other industries. These individuals are also often self-employed or receive finances from family members that have migrated to cities.

Conventional family farming is often characterized by low productivity due especially to low levels of investment in farming inputs or equipment. Agricultural finance, including loans for agri land purchase, has the potential to drastically increase farm productivity. When financial sources, such as short, medium, or long-term loans, and loans for Agri land purchase become available to farmers, it can lead to an increase in farm productivity and quality.

Uses of Agri Loans –

Agricultural prices are known to be quite volatile and very few farmers are able to provide guarantees that are acceptable, either legally or financially. The returns are also very often quite low. The peculiarities of agricultural finance from the point of view of farmers demand that agricultural finance for farmers is customized to the diverse needs and requirements of rural households. Some of the major needs include:

  1. Short-Term

This relates to input financing at the start of the crop year for things like fertilizers, seeds, and pesticides. This financing also covers capital for feed, storage facilities, additional labour, and processing facilities, among others.

  1. Medium and Long-Term

Here, capital is used for equipment intensification expenses, commercialization, storage, and investment, renewal, loan for Agri land purchase and maintenance with respect to perennial crops.

  1. Family Needs

Capital goes towards personal expenses, purchase of durable goods, and housing-related expenses.

Vital Features of Agri Loans :

  • Agri Loans offered by Banks and NBFCs require no financials for equipment Loans up to 50lacs.
  • Lenders provide Higher Loan-To-Value Ratio, Longer tenures and Flexible repayment options for the borrowers to ease repayment.
  • Owing to the seasonal nature of agriculture, lenders of Agri Loans offer quicker Turn-Around Times and sensitivity to harvest seasons to reduce repayment burden over the farmers.

There is no doubt that micro-finance has the potential to play a game-changing role in the agricultural landscape in India. The micro-finance sector has already made inroads into deepening its engagement in the agricultural sector, and this bodes well for the agricultural sector in India.

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