Directorate of Economics and Statistics, Department of Agriculture and Cooperation, Ministry of Agriculture and Farmers Welfare, Government of India, New Delhi
Punjab Agricultural University, Ludhiana,India
 Sponsored by
Directorate of Economics and Statistics, Department of Agriculture and Cooperation, Ministry of Agriculture and Farmers Welfare, Government of India, New Delhi
Research Content
Flow of Credit to Small and Marginal Farmers in Punjab

           The present study was undertaken (i) To review the credit experience of traditional financial institutions with respect to the vulnerable sections of the farming community (ii) To document through case studies the innovative credit experiments of new generation of rural financial institutions, especially in private and cooperative sectors in India, with respect to the same target group (iii) To identify and analyze the existing credit/flow gaps and the reasons there of for the same target group; and (iv) To suggest measures, both at economic policy level and enterprise level to ensure smooth flow of credit on sustainable basis to this group. In order to evaluate the functioning of traditional and modern generation credit organizations, the secondary data were collected from NABARD and State Level Bankers’ Committee (SLBC) and other published sources. Primary data were collected from regions viz., financially advanced and traditional. It was found that almost half of the priority-sector advances were streamed into agricultural sector and advances made to small farmers are 27.02 per cent of the total agricultural advances. The state of flow of credit to this category of farmers (small and marginal) was to be verified at micro level and larger number of such farmers to be covered in future. It was observed that no new generation financial institutions in Punjab had taken initiative for financing the self-help groups till now. The process had been marred with wrong selection of beneficiaries, improper monitoring and less promising purposes for which the loans were being advanced. Overtime, there had been an increased flow of credit in the state and in the selected regions. The crop loans constituted more than two third of the agricultural advances. Only two types of credit institutions were operating in the selected area i.e. commercial banks and regional rural banks. Majority of the agricultural loans were being given to the medium and large farmers. The commercial banks preferred large farmers for crop loans and medium & long-term asset creation loans and agri-output processing loans. However, the small and marginal farmers used to corner the entire amount of credit for medium term irrigation purpose. The concentration of the small and marginal farmers was slightly more pronounced in case of cooperative credit. The results depicted the favour for medium and large households in the disbursement of institutional credit call for reversal of these trends. The results of primary data revealed that the small and marginal farmers derived less per capita income per annum than that of medium and large farmers. However, the position of small farmers was much better when compared with marginal farmers and landless households, the latter two groups almost having the same level of per capita income; the marginal farmers had no income from (participation in) wage labour, whereas the landless had 78 per cent of their income from wage labour. The small and marginal farmers were not at par while getting the consumption as well as production loans. It emerged out that only 40 per cent of the households used to get loans from commercial banks, whereas the proportion was 84 per cent for cooperatives and 90 per cent for informal lending sources. There was not much difference in the importance of various credit institutions across the study area and household categories. All the household categories used significant amount of formal credit for consumption (rather than for some productive purpose). The dependence of the households on the formal sources decreased on medium and large farms. All the household groups (except landless) were relatively more dependent on the cooperative sources. The relative dependence on informal sources for the production credit increased with the increase in farm size. The small and marginal farmers were relatively disadvantaged against the medium and large farmers with respect to the cost of credit. The default rates for the formal credit followed the declining trend with increase in landholding status. The default rates for informal credit were the highest on small and marginal farms. The results reflect highly comfortable relationships of the households with formal sources of credit. The households felt least comfortable with the informal sources of credit. However, the households used to get the informal credit in a relatively short period which ranged from on the spot delivery to just one and a half day. The least value of index of formal credit flexibility was observed for marginal farmers and the highest for medium & large farmers. The index for informal credit was observed to increase with increase in land holding status due to obvious reasons. The study highlighted the need for strengthening the appraisal of the loan proposals and monitoring of the credit along with check on illegal expenses and some other avoidable formalities. The duration for loan processing which was relatively long for the small farmers, needs to cut short. Providing the credit in the form of inputs required may also result in the lower default rates. There had been very high demand for the collaterals by the formal credit institutions. Self help groups provide an effective alternative but the better execution of this process and deeper probe for the avenues from where the households can generate their income by investing the money.