Posted by Anjali Kaur on Jul 05, 2020

What is the Rural Credit system?

Credit stands for the loan given officially from the bank either through paper documents or through the plastic cards (Credit cards). In the same way, we have a rural credit system that focusses on improving rural development. Apart from understanding rural credit, we will also learn the types of rural credit as per the needs of the farmers. Let’s start.

Need for rural credit

The growth of the rural economy depends primarily on the infusion of capital from time to time to achieve higher productivity in agriculture and non-agriculture sectors. As the time of gestation between crop sowing and realization of income after production is quite long. Due to the lengthy period, farmers borrow from various sources to meet their initial investment in seeds, fertilizers, implements, and other family expenses like marriages, death, religious ceremonies, etc. All these requirements create a need for rural credit.

What do we mean by rural credit?

Rural credit refers to credit for farmers in rural areas. Since, credit contributes to the growth in rural areas. The government ensures an effective rural credit delivery system to provide timely access to credit to enhance agricultural productivity.

What are the classification of rural credit needs?

Credit needs of the farmers can be classified in two categories:

1. According to Time: People need credit according to the time period. This is of the following types:
   1. Short-Term Credit Needs- Where loan given for 6-15 months, to buy seeds, tools, fertilizers, etc.
   2. Medium-Term Credit Needs– Under this loan period ranges between 15 months to 5 years to buy machinery, equipment, etc.
   3. Long-Term Credit Needs– Under this loan period ranges between 5-20 years for buying assets like tractor, land, heavy machines, etc.
2. According to Purpose: Rural people require credit to meet the purpose of their needs. This is of two types:
   1. Productive Purpose- This loan is granted to increase agricultural production. For instance, to buy commodities related to increasing agricultural production; seeds, fertilizers, machines, etc.
   2. Non-Productive Purpose- Under this, a loan is provided to meet social obligations, and not for agricultural production. For instance, to meet expenses related to religious ceremonies, deaths, marriages, medical emergencies, etc.

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