Question

State and elaborate, whether the following statements are true/false, with valid arguments
Small and marginal farmers are given preference in getting credit from non-institutional sources like Regional Rural Banks, Cooperative Banks, etc.
 

Hint:

While formal credit institutions provide priority to small farmers, accessibility remains a challenge, leading to reliance on non-institutional sources of credit.

Answer 1

Statement

Small and marginal farmers are given preference in getting credit from non-institutional sources like Regional Rural Banks, Cooperative Banks, etc.

Evaluation: False

The statement is false because Regional Rural Banks (RRBs) and Cooperative Banks are institutional sources of credit, not non-institutional sources. Non-institutional sources include moneylenders, traders, landlords, relatives, and friends. While small and marginal farmers may rely on non-institutional sources due to accessibility, these sources do not prioritize or give preference to them in a structured or policy-driven manner, unlike institutional sources such as RRBs and Cooperative Banks, which are mandated to prioritize small and marginal farmers under specific guidelines.

Elaboration

1. Definition of Non-Institutional vs. Institutional Sources

• Non-Institutional Sources: These include informal lenders such as moneylenders, traders, commission agents, landlords, relatives, and friends. They are characterized by simpler loan procedures, high interest rates, and lack of regulatory oversight. Historically, these sources accounted for a significant portion of rural credit (e.g., 93% in 1950-51), but their share has declined to about 30% in recent years due to the rise of institutional credit.
• Institutional Sources: These include government-regulated entities like Cooperative Banks, Regional Rural Banks (RRBs), Commercial Banks, and the National Bank for Agriculture and Rural Development (NABARD). These institutions are designed to provide affordable credit to farmers, with a focus on small and marginal farmers, under policies like Priority Sector Lending (PSL).

2. Misclassification in the Statement

The statement incorrectly categorizes RRBs and Cooperative Banks as non-institutional sources. Both are institutional sources established to address the credit needs of rural areas, particularly for small and marginal farmers. For example:

• Cooperative Banks: Established under the Cooperative Credit Societies Act of 1904, these banks aim to provide affordable credit to small and medium farmers. They are member-owned and focus on rural communities, offering loans at lower interest rates.
• Regional Rural Banks: Created in 1975 under the RRBs Act, RRBs are mandated to provide credit to small and marginal farmers, agricultural laborers, and rural artisans. They have a specific PSL target of 18% for agriculture, with a sub-target of 9% (increasing to 10% by 2023-24) for small and marginal farmers.

3. Preference in Non-Institutional Sources

Non-institutional sources do not have a formal policy or mandate to prioritize small and marginal farmers. Instead, these farmers often turn to such sources due to:

• Ease of Access: Non-institutional sources offer simpler procedures and require little to no collateral, making them more accessible than formal institutions, which often have complex documentation processes.
• Inaccessibility of Institutional Credit: Approximately 30.3% of agricultural households rely on non-institutional sources due to barriers like distance to banks, borrower-unfriendly procedures, and lack of collateral.
• High Interest Rates and Exploitation: Moneylenders and traders often charge exorbitant interest rates and engage in malpractices, such as manipulating accounts or forcing farmers to sell produce at low prices. These practices exploit small and marginal farmers rather than giving them preference.

Thus, while small and marginal farmers may frequently borrow from non-institutional sources, this is driven by necessity, not preference or priority from the lenders.

4. Preference in Institutional Sources

In contrast, institutional sources like RRBs and Cooperative Banks are explicitly designed to prioritize small and marginal farmers:

• Priority Sector Lending (PSL): The Reserve Bank of India (RBI) mandates that RRBs allocate 18% of their Adjusted Net Bank Credit to agriculture, with a sub-target for small and marginal farmers (currently 9%, increasing to 10% by 2023-24).
• NABARD’s Role: NABARD provides refinance support to RRBs and Cooperative Banks to enhance credit flow to small and marginal farmers, including short-term crop loans and long-term investment credit.
• Interest Subvention Schemes: The government offers interest subvention (e.g., 2% per annum) on short-term crop loans up to ₹3 lakh, reducing the effective interest rate to 7% for farmers, particularly benefiting small and marginal farmers.
• Performance: RRBs have surpassed their lending targets for small and marginal farmers from 2018 to 2021, indicating a strong policy focus on this group.

5. Conclusion

The statement is false because:

• RRBs and Cooperative Banks are institutional, not non-institutional, sources of credit.
• Non-institutional sources like moneylenders and traders do not prioritize small and marginal farmers; instead, they often exploit them with high interest rates and malpractices.
• Institutional sources, such as RRBs and Cooperative Banks, are mandated to prioritize small and marginal farmers through PSL targets, refinance support from NABARD, and interest subvention schemes, though gaps in implementation persist.

Final Answer

The statement is false. Small and marginal farmers are not given preference in getting credit from non-institutional sources like moneylenders or traders, which often exploit them. Instead, institutional sources like Regional Rural Banks and Cooperative Banks are designed to prioritize these farmers, though accessibility challenges remain.