"In the villages itself no form of credit organisation will be suitable except the cooperative society."– All Indian rural credit survey. Discuss this statement in the background of agriculture finance in India. What constrain and challenges do financial institutions supplying agricultural finances? How can technology be used to better reach and serve rural clients?
Agricultural finance has grown substantially in the last few decades thanks to revival of agricultural credit by commercial banks and regional rural banks. However, studies have shown that a major portion of this increase can be attributed to indirect lending to agriculture via NBFCs, institutions supporting agri causes etc. and lending under the priority sector. Also, most of the loans were of large amounts showing that money was being lent to the large and established farmers, and not the small and marginal ones. Additionally, most of the loans were directed to urban areas. Add to this the depressingly high rates of interest charged by lenders with micro-credit organisations, cooperative societies emerge as the least exploitative and most convenient form of credit for rural India. Cooperative societies are easy to form for villagers who trust each other and can be democratically managed, with the limited liability protecting them from losses. Also, cooperatives provide stability to the economic operations and eliminates middlemen and saves on the money that is siphoned off by them.
Agricultural credit does not lead to huge financial gains for banks and most institutions don’t branches in rural areas to provide services to their clients. Technology can be used to enable access to banking facilities through mobile or computer via internet, thus eliminating the need for personnel or bank branches.