Posted by Anjali Kaur on Jul 29, 2020
Sources of rural credit

Sources of Rural Credit

Rural development is an important pillar for any country’s successful development and growth. We have seen the meaning of rural development, key issues faced by India for rural development, and the need for rural credit. Rural credit means providing loan facilities to people in rural areas. Today, I will be explaining the different sources of rural credit available in India. Let’s learn.

Sources of Rural Credit

The sources of rural credit include; non-institutional sources of credit and institutional sources. Let’s discuss them;

Non-institutional sources of rural credit

Non-institutional sources of credit are informal as they are not availed through any legal formalities. It includes taking loans from moneylenders, relatives, traders, landlords, friends, etc. The drawback of such loans includes paying an extremely high rate of interest on the credit, and exploitation by the creditor (the person who gives or lends a loan).

Institutional sources of rural credit

Institutional sources are those credit sources that are formal and involves the formalities of providing or proving the means to pay back the loan. It includes banks, commercial banks, Regional Rural Banks, cooperatives, etc. The advantage of institutional sources of credit for rural people includes paying a low rate of interest on the credit availed.

Let’s discuss some of the formal sources of credit.

National Bank for Agriculture and Rural Development (NABARD)

National Bank for Agriculture and Rural Development (NABARD) was set up in 1982. NABARD is an apex body to coordinate the activities of all institutions involved in the rural financial system.

Cooperative Credit Societies

Cooperative Credit Societies was established in 1904. They play a major role in shifting the role of the informal sector to the formal sector in the provision of rural credit. The other functions (roles) of Cooperative Credit Societies includes;

  • Providing credit to the farmers at a reasonable rate of interest (they contribute nearly 30% of rural credit).
  • These societies resulted in liberating the farmers from the exploitation of moneylenders.
  • They ensure providing credit facilities to all over the country.
  • They also ensure a timely and continuous flow of credit to rural areas.

Thank You!

Photo by Micheile Henderson on Unsplash

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