Rural Credit and Cooperatives
NCERT Class 12 • Indian Economic Development • Chapter "Rural Development"
Rural Credit and Cooperatives
Farming has a long gap between sowing and income, so the farmer must spend on seed, fertiliser and labour months before any money comes in. Credit is therefore not a luxury in agriculture but a necessity, and the terms on which it is available shape the whole rural economy.
Why Credit Is Needed and Its Types
- Short term credit is taken for one crop season to buy seed, fertiliser and pay wages.
- Medium term credit runs for a few years and is used for implements, cattle and small irrigation work.
- Long term credit runs for many years and is used to buy land, a tractor or to build a well.
- Credit is also needed for consumption during the lean season, and for marriages, illness and festivals.
- Before independence, the moneylender dominated rural credit and charged very high interest.
- Because loans were secured against land, default often meant the loss of the farmer's land itself.
Institutional Credit After Independence
- Cooperative credit societies were promoted as the main institutional source at the village level.
- After bank nationalisation, commercial banks were required to open rural branches and lend to priority sectors.
- Regional rural banks were created to serve rural borrowers with the local reach of a cooperative and the discipline of a bank.
- A national level institution was created to refinance and supervise rural and agricultural credit.
- Self help groups and microfinance extended credit to those without collateral, especially women.
- Problems remain: overdues and default, uneven spread of branches, and the continuing presence of informal lending.
- Kisan Credit Card gives a farmer a flexible short term credit limit renewable every season.
- Crop insurance protects the borrower when the crop fails, so the loan does not turn into a debt trap.
- Tenant farmers and sharecroppers often remain outside institutional credit because they lack land records.
| Credit Type | Period | Typical Use |
|---|---|---|
| Short term | One crop season | Seed, fertiliser, wages |
| Medium term | A few years | Implements, cattle, small irrigation |
| Long term | Many years | Land purchase, tractor, well |
Priority sector lending — the requirement that banks lend a fixed share of their credit to agriculture and other specified sectors.
Exam me kaise aata hai
- Credit for one crop season is — short term credit
- Credit for buying a tractor is — long term credit
- Which banks were created for rural borrowers — regional rural banks
- Lending a fixed share to agriculture is called — priority sector lending
UPSC/State PSC ke liye
- Credit alone cannot raise farm income; it works when combined with assured irrigation, extension advice and a working market.
- High overdues weaken cooperatives because a society that cannot recover cannot lend again, which is why recovery discipline is central to rural credit.
Yahan confuse hote hain
✗ Farmers need credit only for emergencies | They need it every season for regular farm expenses | ✓
✗ Cooperative and commercial bank credit are the same | Cooperatives are member owned; commercial banks are not | ✓
✗ Long term credit is used for buying seed | Seed is bought with short term credit | ✓
Ek nazar me
- Farming needs credit because income comes months after spending.
- Short, medium and long term credit serve different purposes.
- Cooperatives, nationalised banks and regional rural banks form the institutional base.
- Overdues and informal lending remain the main problems.