68.84% of the population in India is rural based and majority of them depends on agriculture for a living. Enhanced and stable growth of the agriculture sector is important as it plays a vital role not only in generating purchasing power among the rural population by creating on-farm and off-farm employment opportunities but also through its contribution to price stability and food security.The share of agriculture and allied sectors in Gross Bank Credit was about 13 per cent despite rise in credit flow to agriculture in absolute terms. The heavy dependency of farmers on moneylender is partly on account of denial or limited access to Bank services.
The Rural Finance Market comprises of:
(i) Organized or formal system;
(ii) Unorganized or informal segment.
The Organized or formal segment consists of the Reserve Bank of India (RBI), National Bank for Agriculture and Rural Development (NABARD), Public and Private Sector Commercial Banks, Regional Rural Banks (RRB), Land Development Banks (LDB), State Cooperative Banks (SCB), Central Cooperative Banks (CCB), Primary Agricultural Cooperative Banks (PACB), Central and States Governments, Life Insurance Corporations (LIC), Post Office Saving Banks, etc
Main sources of Unorganized or informal segment are as follows:-
Money Lenders: There are two types of money lenders in rural areas. a) agricultural money lenders and b) professional money lender. Agricultural money lender’s main occupation is farming and money lending is secondary one. Professional money lender’s main profession is money lending. Although the reliance on money lender by rural poor declined over the years, the credit disbursed by money lenders still forms a major portion of the total credit obtained by the farmers.
Land Lords:Small farmers and tenants rely on land lords for finance to meet out their productive and unproductive expenses. This source of finance has all the defects associated with money lenders. Interest rates are exorbitant. Often small farmers are forced to sell out their lands to these land lords and they become land less labourers.
The enactment of the Cooperative Credit Societies Act 1904 was the first effort made by the Government in the country to institutionalize agricultural credit by promoting the cooperatives in a corporate form.After India attained Independence in August, 1947, cooperatives assumed a great significance in poverty removal and faster socio-economic growth. With the advent of the planning process, cooperatives became an integral part of the Five Year Plans. As a result, they emerged as a distinct segment in our national economy.In the First Five Year Plan, it was specifically stated that the success of the Plan would be judged, among other things, by the extent it was implemented through cooperative organisations.
State Cooperative Bank at the apex level in each State, the Central Cooperative Bank at the District level and Primary Agricultural Credit Societies / Primary Agricultural Cooperative Banks / Large Sized Agricultural Multi-Purpose Societies / Farmers Service Societies at the base level serves the structural development of cooperative societies in India.
The cooperatives have been operating in various areas of the economy such as credit, production, processing, ,marketing, input distribution, housing, dairying and textiles. In some of the areas of their activities like dairying, urban banking and housing, sugar and handlooms, the cooperatives have achieved success to an extent but there are larger areas where they have not been so successful.
The failure of cooperatives in the country is mainly attributable to: dormant membership and lack of active participation of members in the management of cooperatives. Mounting overdues in cooperative credit institution, lack of mobilisation of internal resources and over-dependence on Government assistance, lack of professional management. bureaucratic control and interference in the management, political interference and over-politisation have proved harmful to their growth. Predominance of vested interests resulting in non-percolation of benefits to a common member, particularly to the class of persons for whom such cooperatives were basically formed, has also retarded the development of cooperatives. These are the areas which need to be attended to by evolving suitable legislative and policy support.
National Bank for Agriculture and Rural Development (NABARD) was established through an Act of Parliament in 1982. NABARD was set up as an apex Development Bank with a mandate for facilitating credit flow for agriculture, rural industries and all other allied economic activities.
NABARD was established with an aim of building an empowered and financially inclusive rural India through specific goal oriented departments which can be categorized broadly into three heads: Financial, Developmental and Supervision. Through these initiatives we touch almost every aspect of rural economy. From providing refinance support to building rural infrastructure; from preparing district level credit plans to guiding and motivating the banking industry in 
achieving these targets; from supervising Cooperative Banks and Regional Rural Banks (RRBs) to helping them develop sound banking practices and onboarding them to the CBS platform; from designing new development schemes to the implementation of GoI’s development schemes; from training handicraft artisans to providing them a marketing platform for selling these articles.
The Narasimham Committee on rural credit (1975) recommended the establishment of Regional Rural Banks, as it was of the view that neither commercial banks nor co-operative institutions were able to meet agricultural credit needs. Another major step taken towards the development of rural credit was the establishment of NABARD in 1982 by a special act of Parliament on the recommendation of the Committee to Review Arrangement for Institutional Credit for Agriculture and Rural Development. Its mission is to “promote sustainable and equitable agriculture and rural prosperity through effective credit support, related services, institution development and other innovative initiatives” (NABARD).
Three other initiatives, viz., the Kisan Credit Card Scheme, Self Help Group-Bank Linkage Programme and Special Agricultural Credit Plans were put in place in the 1990s to increase the flow of credit to the agricultural sector. The increased lending to agriculture accelerated, particularly after the government adopted doubling of agricultural credit policy (DCAP) over a three-year period beginning in 2003-04.
Despite the successive efforts taken by the government, the latest All India Debt and Investment Survey (AIDIS) by the NSSO shows that non-institutional agencies still accounted for as much as 44 per cent of outstanding dues in 2012-13, an increase from the 36 per cent level in 1990-91. The ground level institutional credit flow to agriculture has shown a significant increase of more than ten times from Rs.0.53 lakh crore in 2001-02 to Rs.6.07 lakh crore in 2012-13 (Annual Report NABARD, 2013-14). And yet, only about half of 14 crore farm households were covered by formal institutions while the remaining were dependent on informal sources such as moneylenders who charge exorbitantly high rates of interest.
Special Agriculture Credit Plan
With a view to ensuring that the flow of credit to agriculture increases substantially, RBI advised banks in 1994-95 to prepare an action plan for disbursement of credit to agriculture. Accordingly, each bank prepares a Special Agricultural Credit Plan (SACP), segregated into quarterly targets, which is monitored by the RBI. Earlier, the SCAP mechanism was applicable only to the public sector banks but it was extended to private sector banks in 2005-06.
2004 Initiative for Doubling of Agricultural Credit
In June 2004, the central government announced a package of measures aimed at doubling agricultural credit over three years, starting with a credit growth of 30 per cent for 2004-05. The measures taken by the Reserve Bank and the Indian Banks Association in respect of commercial banks and by NABARD in respect of co-operative banks and the RRBs included debt restructuring and fresh loans to farmers affected by natural calamities, one time settlement for small and marginal farmers, fresh finance to farmers whose earlier debts had been settled and relief measures for farmers indebted to private money lenders. This initiative was immensely successful and the actual disbursement of credit exceeded the three-year target. Encouraged by the expansion of credit, the central government fixed targets for subsequent years as well. The target increased at an annual compound growth rate of 21 percent in the period beginning from 2004 to 2014.
Kisan Credit Cards
The Kisan Credit Cards Scheme, introduced in August 1998, is an innovative credit delivery mechanism to meet the credit needs of the farmer. Apart from providing short-term and term loans, a certain component of KCC also covers consumption needs. An important feature of the scheme from the outset was that once the documentation to establish the bona fide and assets of beneficiaries is done, they could approach financial institution for simple and hassle free sanction of credit from the second year onwards. Further progress was made in later years and now the passbook has been replaced by a plastic card, and the Kisan Credit Card is an ATM enabled debit card. Under the earlier system, disbursal of short-term credit to agriculture was mostly through demand loans and cash credit, which permitted withdrawals mainly through debit vouchers, saving accounts and through bankers’ cheques. However, the traditional system of loan disbursement through passbooks were replaced by ATM-enabled debit cards with facility for withdrawal/disbursement of loan. The main objective is to develop a cashless eco system by enabling the farming community to avail of banking facilities. Its use has spread over the vast institutional credit framework involving commercial banks, RRBs and co-operatives.
Financial Inclusion Programmes
The outreach of agriculture credit to farmers by covering them through bank accounts is one of the most important factors that have led to the recent expansion of agricultural credit. According to the latest data released by AIDIS (2013), 68.8 per cent of rural households and 79.5 per cent of urban households had bank accounts.
As part of the financial inclusion programme, the government had launched the Swabhiman scheme in 2011 to extend the reach of banking in rural areas initially to approximately 74,000 habitations with a population of more than 2,000. It aimed to provide branchless banking services in the remotest areas through banking correspondents, making use of technology.
Performance of Institutional Credit Agencies In the year 1975-76, co-operative banks accounted for the largest share of 75 per cent, followed by commercial banks at 25 per cent and RRBs at 0.13 per cent. In 1990-91, the shares of cooperative institutions and commercial banks were almost equal at 48 per cent and 49 per cent, respectively. Thereafter, there has been a turnaround in the position of these two institutions. There is a gradual decline in the share of co-operatives and an increase in the share of commercial banks. By 2012-13, the share of co-operative banks had fallen to around 17 per cent while that of commercial banks had increased to 73 per cent.
A land development bank is a special kind of bank in India, and is of quasi-commercial type that provides services such as accepting deposits, making business loans, and offering basic investment products. The main objective of the LDB is to promote the development of land, agriculture and increase the agricultural production. The LDB provides long-term finance to members directly through its branches.
The working capitals of LDBs are raised from share capital, deposits and debentures, and borrowings from the State Bank of India, commercial banks and the State Co-operative Banks. However, a large part of their funds are raised through long-term debentures. The debentures can be issued only by the Central Land Development Banks and not by the Primary Land Development Banks.
Under its federal structure, the LDB consists of two-tier institutions: (i) the Central Land Development Bank at the State level, and (ii) the Primary Land Development Bank at the district or Taluka level.
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The basic objective of the Bank is to provide long term credit facilities to the farmers . The main purposes are taken for financing is as follow:-
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