Topic 05 of 6 · Chapter 03 · Indian Economy
Agricultural Credit — NABARD, Kisan Credit Card
Sources of agricultural credit, NABARD functions, Kisan Credit Card, cooperative credit, and microfinance.
📋 In This Article
1. Importance of Agricultural Credit
Farmers need credit for:
- Short-term: Seeds, fertilisers, pesticides, labour (repaid after harvest)
- Medium-term: Farm equipment, irrigation (repaid in 1-5 years)
- Long-term: Land development, major irrigation works (repaid in 5-15 years)
⭐ The Debt Trap: Without institutional credit, farmers borrow from moneylenders at 24-36% interest. This creates a debt trap — farmers can never repay. Institutional credit (banks, cooperatives) at 4-7% interest is the solution. This is why agricultural credit is a policy priority.
2. Sources of Agricultural Credit
| Source | Type | Examples | Interest Rate |
|---|---|---|---|
| Moneylenders | Informal | Local sahukar, landlord | 24-36% (exploitative) |
| Commercial Banks | Formal | SBI, PNB, Bank of Baroda | 7-9% |
| Cooperative Banks | Formal | Primary Agricultural Credit Societies (PACS) | 4-7% |
| Regional Rural Banks (RRBs) | Formal | Andhra Pradesh Grameena Vikas Bank | 7-9% |
| NABARD | Formal (apex) | Refinances banks and cooperatives | Refinance rate |
| Microfinance Institutions | Semi-formal | SKS Microfinance, Bandhan | 18-24% |
3. NABARD — National Bank for Agriculture and Rural Development
NABARD was established on July 12, 1982 based on the recommendations of the Shivaraman Committee. It is the apex development bank for agriculture and rural development.
- Headquarters: Mumbai
- Functions:
- Provides refinance to banks and cooperatives for agricultural loans
- Supervises Regional Rural Banks (RRBs) and cooperative banks
- Promotes rural development through various schemes
- Conducts inspection of cooperative banks and RRBs
- Manages Rural Infrastructure Development Fund (RIDF)
✅ NABARD’s Role: NABARD doesn’t lend directly to farmers. It refinances banks — i.e., provides funds to banks at lower rates so they can lend to farmers at affordable rates. It’s like a wholesale bank for agricultural credit.
4. Kisan Credit Card (KCC)
The Kisan Credit Card (KCC) scheme was launched in 1998-99 to provide farmers with timely and adequate credit for their agricultural needs.
- Provides a revolving credit facility — farmers can withdraw and repay multiple times
- Interest rate: 4% per annum (with government interest subvention)
- Credit limit based on land holding and crop pattern
- Can be used for crop production, post-harvest expenses, maintenance of farm assets
- Extended to fishermen and animal husbandry farmers in 2019
💡 How KCC Works
A farmer with 2 acres of land gets a KCC with a credit limit of ₹1 lakh. He can withdraw ₹50,000 in April to buy seeds and fertilisers. After harvest in October, he repays ₹50,000. Then in November, he withdraws again for the next crop. This revolving credit is much more flexible than a regular loan.
5. Key Points for Exam
🔑 Must-Remember Facts
- NABARD established: July 12, 1982
- NABARD based on: Shivaraman Committee recommendations
- NABARD headquarters: Mumbai
- NABARD = apex bank for agriculture and rural development
- NABARD supervises: RRBs and cooperative banks
- NABARD manages: Rural Infrastructure Development Fund (RIDF)
- Kisan Credit Card launched: 1998-99
- KCC interest rate: 4% per annum (with subvention)
- KCC extended to fishermen and animal husbandry: 2019
- PACS = Primary Agricultural Credit Societies (grassroots cooperative)