Sources of Agricultural Finance Credits - Economics Notes Grade XI

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Sources of Agricultural Finance Credits

Sources of Agricultural Finance Credits
Nepal is an agricultural country but the majority of the farmers are poor. So, Nepalese farmers need the financial credit required for investment in the agricultural sector. The farmers receive the required credit from different sources which can be classified into two sectors.

1. Traditional or informal or non-institutional or unorganized sector
The local individuals who provide credit to the farmers are unorganized sources of agricultural credit. The rural farmers of Nepal are dependent on the unorganized sector for their agricultural credit. About 60% of agricultural credit comes from these sectors. The unorganized sources of agricultural credit are as follows:

a) Friends and relatives:
The friends and relatives of farmers provide credit to the farmers in a small amount to meet day to day needs and emergency needs. They provide a loan with or without interest and security.

b) Landowners:
Landowners provide the credits to the farmers for short terms as well as long term. Generally, the short term credit is provided with the security of standing crops and cattle and long term credit is provided with the security of land and house.

c) Merchant and traders:
They also provide credit during the pre-harvest season. The farmers are forced to sell their products at a low price because the time for repayment of a loan is very short.

d) Village money lenders:
The farmer may receive credit from village money lenders. They provide credit with the security of movable and immovable credit with the security movable and immovable property.

2. Modern or formal or institutional or organized sector
The institutional sources which provide the credit to the farmers are known as organized sources of agricultural credit. They are established especially for the development of the agricultural sector. In Nepal, 40% of the credits come from organized sources. The organized sources of agricultural credits are as follows:

a) Cooperative societies:
The cooperative movement was started in Nepal form 1953 A.D. with the concept of self-help through mutual help. It was established as back at 1963 A.D. The main objective of this bank is to provide credit and other inputs in cheap rate to the farmers.

b) Agricultural Development Bank (ADB):
The ADB was established in 1968 A.D. for the development of the agricultural sector in Nepal. ADB provides short term (less than one year), medium term (1 to 5 years) and long term (more than 5 years) credits to the farmers.

c) Commercial Bank:
They are the second largest institution after the Agricultural Development Bank of Nepal to provide credit to the farmers. Nepal Rastriya Bank directed the commercial bank to invest more than 12 % of their total credit under the priority sectors.

d) Rural Development Bank (RDB):
The first RDB was established in Nepal in 2047 B.S. At present, there are 5 rural development banks established in each development regions with the objective to provide micro-credit to the poor farmers.

e) Finance Companies:
There are various finance companies established in different parts of the countries. Some of these companies are directly involved to provide loan to the poor farmers.

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