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. Regional Rural Banks (RRBs) and Cooperative Banks are institutional credit sources, not non-institutional ones. Non-institutional sources include informal lenders like moneylenders, traders, landlords, relatives, and friends. While small and marginal farmers may rely on non-institutional sources due to accessibility, these lenders do not have policies to prioritize them. Conversely, institutional sources like RRBs and Cooperative Banks are mandated to prioritize small and marginal farmers.

Elaboration

1. Definition of Non-Institutional vs. Institutional Sources

• Non-Institutional Sources: These are informal lenders such as moneylenders, traders, commission agents, landlords, relatives, and friends. They often have simple procedures and high interest rates, with minimal regulation. Historically, they provided a large share of rural credit, but their role has decreased as institutional credit has grown.
• Institutional Sources: These are regulated entities including Cooperative Banks, Regional Rural Banks (RRBs), Commercial Banks, and NABARD. They aim to provide affordable credit to farmers, with a focus on small and marginal farmers, often under Priority Sector Lending (PSL) guidelines.

2. Misclassification in the Statement

The statement incorrectly classifies RRBs and Cooperative Banks as non-institutional. Both are institutional entities established to meet rural credit needs, especially for small and marginal farmers. For instance:

• Cooperative Banks: These banks, established under the Cooperative Credit Societies Act of 1904, provide affordable credit to small and medium farmers in rural areas, typically at lower interest rates.
• Regional Rural Banks: Established in 1975 under the RRBs Act, RRBs are tasked with providing credit to small and marginal farmers, agricultural laborers, and rural artisans. They have a PSL target for agriculture, with specific sub-targets for small and marginal farmers.

3. Preference in Non-Institutional Sources

Non-institutional sources lack formal policies to prioritize small and marginal farmers. These farmers often resort to them due to:

• Ease of Access: Non-institutional lenders offer simpler loan processes and require less collateral compared to formal institutions.
• Inaccessibility of Institutional Credit: Many agricultural households rely on non-institutional sources because of barriers such as bank distance, complex procedures, and lack of collateral.
• High Interest Rates and Exploitation: Moneylenders and traders often charge very high interest rates and may engage in unfair practices, exploiting small and marginal farmers instead of prioritizing them.

Therefore, small and marginal farmers' borrowing from non-institutional sources is usually out of necessity, not due to any preference from these lenders.

4. Preference in Institutional Sources

Conversely, institutional sources like RRBs and Cooperative Banks are specifically designed to prioritize small and marginal farmers:

• Priority Sector Lending (PSL): The RBI mandates that RRBs allocate a significant portion of their net bank credit to agriculture, with specific sub-targets for small and marginal farmers.
• NABARD’s Role: NABARD supports RRBs and Cooperative Banks to increase credit flow to small and marginal farmers through refinance facilities.
• Interest Subvention Schemes: Government schemes offer interest subsidies on crop loans, reducing the effective interest rate for farmers, which particularly benefits small and marginal farmers.
• Performance: RRBs have met or exceeded their lending targets for small and marginal farmers in recent years, demonstrating a policy emphasis on this group.

5. Conclusion

The statement is false because:

• RRBs and Cooperative Banks are institutional, not non-institutional, credit providers.
• Non-institutional sources like moneylenders and traders do not prioritize small and marginal farmers and often exploit them.
• Institutional sources, like RRBs and Cooperative Banks, are mandated to prioritize small and marginal farmers through PSL, NABARD support, and interest subvention schemes, although implementation challenges exist.

Final Answer

The statement is false. Small and marginal farmers are not prioritized by non-institutional sources such as moneylenders or traders, who may exploit them. Instead, institutional sources like Regional Rural Banks and Cooperative Banks are structured to prioritize these farmers, despite ongoing accessibility issues.