Types Of Rural Credit in India | sources of rural credit in India |

Types Of Rural Credit in India | sources of rural credit in India
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Rural credit in India is a critical component for supporting agriculture, rural industries, and livelihoods. It refers to loans and other financial services extended to rural areas, primarily to farmers, artisans, and small businesses. These are categorized into several types based on the purpose, time period, and source of credit. Here are the main types:
1. Short-term Credit
This type of credit is usually extended for a period of up to 15 months. It is primarily used for financing seasonal agricultural operations, like purchasing seeds, fertilizers, pesticides, or hiring labor for crop cultivation. Farmers often use this credit to meet the working capital needs for sowing and harvesting.
Example: A small-scale farmer in Punjab may take a short-term loan at the start of the wheat season to cover costs for inputs like seeds and fertilizers. The loan is repaid after the harvest when the crop is sold.
2. Medium-term Credit
This credit is typically extended for 15 months to five years and is used for semi-permanent investments such as purchasing farm equipment, livestock, or land improvements like well construction or irrigation.
Example: A farmer in Maharashtra might take a medium-term loan to purchase a tractor or to invest in drip irrigation technology for his farm, ensuring long-term productivity.
3. Long-term Credit
This is granted for periods exceeding five years, often extending up to 20 years. It is used for long-term capital investments like purchasing land, constructing buildings, or investing in machinery.
Example: In a village in Tamil Nadu, a farmer may take a long-term loan to buy additional land for expansion or build a cold storage facility for perishable crops like vegetables.
4. Institutional Credit
Institutional sources provide formal, regulated credit with reasonable interest rates. These include:
Commercial Banks: Provide both short-term and long-term loans, particularly under the government's schemes like Kisan Credit Card (KCC).
Regional Rural Banks (RRBs): Specifically cater to rural and agricultural financing needs.
Cooperative Banks: Typically serve small and marginal farmers by offering credit at lower interest rates.
NABARD (National Bank for Agriculture and Rural Development): This apex body supports and refinances other banks to enhance rural credit access.
Example: A farmer in Uttar Pradesh may use the Kisan Credit Card to access a commercial bank loan for purchasing farm inputs. This institutional credit source ensures access to formal, lower-interest credit.
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