What Is Agricultural Credit?

The term agricultural credit refers to one of several credit vehicles used to finance agricultural transactions. These vehicles include loans, notes, bills of exchange, and banker’s acceptances. This type of financing is specially adapted to the specific financial needs of farmers and allows them to secure equipment, plant, harvest, marketing, and do other things that are necessary to keep their farms running.

Agricultural Loans in India

Agriculture is the backbone of Indian economy and it definitely comes as no surprise to see financial institutions offer monetary aid to farmers all across the country. Agricultural loans are available for different kinds of farming-related activities.

Types of Agricultural Loans in India

One can avail a loan for the following activities related to agriculture:

Running day to day operations

Buying farm machinery such as tractors, harvesters, et cetera

1. Purchasing land
2. Storage purposes
3. Product marketing loans
4. Expansion

Moreover, these financial aids can be offered in form of grants and subsidies too, which are usually meant to protect the farmer in an event of crop damage or loss of crops.

Agricultural loans in India are not only offered to farmers working towards the cultivation of food crops, but they are available to anyone who is engaged in other agriculture-related sectors like horticulture, aquaculture, animal husbandry, silk farming, apiculture and floriculture.

Dairy Entrepreneurship Development Scheme: This scheme is meant to promote the dairy sector, specifically by setting up modernized dairy farms, promoting calf rearing, provide infrastructure, upgrading logistical operations to improve the product on a commercial scale, and generate self-employment.

Rural Godowns: The main objective of this scheme is to help farmers throughout the country by providing them with godowns. This will, in turn, improve their holding capacity drastically and as a result, they will be able to sell their produce at fair rates, rather than selling them under distress. In addition to this, with a nationalised warehouse system in place, the marketing of agricultural produce becomes simpler.

Loan Against Warehouse Receipts: Warehouse receipt financing serves as a foolproof way to prevent distress sales. When a farmer needs funds, post-harvest, all he has to do is store his produce in a Warehousing Development and Regulatory Authority (WDRA) accredited warehouse, which in turn issues him a receipt. This warehouse receipt mentions important details like quality and quantity of the produce, and can be used to get credit from banks, up to 70 percent of the collateral value.

Solar Schemes: These schemes were implemented in order to reduce dependence on grid power by promoting the use of solar equipment. The idea here is to replace diesel pumps with solar ones, considering that they have low operating costs and are environment-friendly.

How Agricultural Credit Works

When someone needs credit, they often turn to banks for loans or other credit vehicles. Some industries have special facilities set aside through certain financial institutions as is the case with agribusiness the business sector encompassing farming and farming-related commercial activities which involve all the steps required to send an agricultural good to market production, processing, and distribution. This is called agricultural credit, which is available in many different countries.

Special Considerations

Countries with farming industries face consistent pressures from global competition. Products such as wheat, corn, and soybeans tend to be similar in different locations, making them commodities. Remaining competitive requires agribusinesses to operate more efficiently, which can require investments in new technologies, new ways of fertilizing and watering crops, and new ways of connecting to the global market.

Global prices of agricultural products may change rapidly, making production planning a complicated activity. Farmers may also face a reduction in usable land as suburban and urban areas move into their areas. Just like any other industry, many entrepreneurs in the agricultural industry also find the need to diversify in order to maximize their profits. So farmers may not just grow single commodities or one type of livestock. Instead, they may need to think beyond existing operations. Doing so requires capital. The availability of agricultural credit helps these borrowers realize their dreams of expanding into more complex businesses.

Types of Agriculture Loan

Given below is the list of types of agriculture loans that you can avail for yourself:

Crop Loan: These types of loans are also known as Retail Agri Loans is a type of loan which allows a farmer to meet his short-term expenses arising due to cultivation of crops, maintenance of farm equipment, and other post farm activities. The farmer gets a credit card called the Kisan Credit Card on availing this type of loan which they can use to withdraw money to make necessary purchases to meet their farming needs.

Agricultural Term Loan: These are long-term loan schemes which a farmer can avail to meet their non-seasonal expenses. One can avail this loan to buy or upgrade equipment such as windmills, solar power, etc. The repayment tenure for such kind of loan schemes can go up to 4 years allowing the farmer to repay the amount in a convenient manner.

Solar Pump Set Loan: If a farmer is involved in small irrigation projects and requires capital to buy photo voltaic pumping system, then availing a solar pump set loan is the appropriate option. The repayment tenure for such loan schemes goes up to 10 years.

Loan for Allied Agricultural Activities: Farmers involved in allied agricultural activities can apply for such type of loans if they need to raise working capitals to meet their farming expenses.

Farm Mechanisation Loan: If a farmer requires working capital so that they can either purchase new farming machineries or upgrade their existing ones such as purchasing a new tractor or getting an old one repaired, then they can apply for these types of loan schemes.

Other types of loans

Agricultural Gold Loan: The applicant can avail this type of loan by pledging their gold ornament as security. The loan amount can be used to meet various farming expenses such as buying machinery or to meet costs related to cultivation of crops. These loans are offered at a low interest rate and allow a farmer to use their gold which would otherwise stay idle.

Forestry Loan: If a person is involved in growing crops which grow on trees, then they can apply for a forestry loan. The loan amount can be used to meet the cost of activities such as converting a barren land into a farming land, setting up irrigation channels, clearing wild trees, etc.

Horticultural Loan: Farmers involved in setting up vegetable farms and orchards can apply for a horticultural loan which not only allows them to meet the cost of managing such type of farms, but also helps in meeting the expenses related to other horticulture activities such as clearing wild trees, setting up fence, etc.