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Why do farmers need more loans?

Agriculture finance is the most crucial aspect for any farmer in a country where 60% of population depends on farming. India is also one of the largest producer of food grains and cash crops as well as the largest consumer of them.  But there are still so many underlying problems in this sector which directly affects the farmer’s ability to earn to his full potential. If we see there are different issues like seed procurement, water management, floods, loss of monsoon, low price for farming produce, high wages, unavailability of labor, transportation of food grains, conversion of land for industries and housing needs, farmers children not interested to take up farming, migration to urban areas, etc..  and problems like disputes between states which do not want to share water to its neighbors. Finance plays a vital role in each aspect, as with availability of finance alternative solutions could be found that would help the farmers not to take adverse decisions.

If we look at the situation of farmers today in rural areas, many of them are not interested in the farming   activity. Some do it because this is all what they know and some do it as they haven’t found another alternative. Most of the children of the farmers are turning into engineers or do other subjects to get jobs into other sectors except agriculture. If you would ask a farmer what will happen to your land after your death, he would say my children will sell it and share the money.

If this is the case what’s happening at the ground level ? Isn’t government giving enough subsidies to boost the farmers and discounted interest rates for the loans to ease the situation. Yes there is availability of finance for farmers when they can get a loan for 0% from the cooperative banks, a discounted 7 to 9% interest on agri loans and also subsidies for loans taken for modernization like installation of drip irrigation, and top it all the electricity is still fully free for the irrigation(Don’t ask me when there is electricity, in some areas it seems they come like lightning!!!). So what is going wrong , why are farmers not able to meet ends still? Why do they still not encourage their younger generations to do farming?  

So there are a list of questions that has to be looked upon:

1.    Is the finance reaching the farmers who deserve it at the right time?
2.    Is the access to financial institutions still a problem?  
3.    Does the low interest rates or subsidies sync with the earnings of farmers(Profitable) from agriculture.
4.    Why do farmers need more loans if the government is providing so many other options?

These are some of my observations with personnel conversations with farmers and also my family doing involved in agriculture. In the next write blog I would like to bring to you different and interesting information on types of informal lending that are available in rural areas and how much effect it has to the farmers financial needs.


  1. India has the dominant 90 per cent informal sector which diffused both urban and rural area. Agriculture is the main sty of the masses occupied in informal sector of the country. Financial sector liberalization reduced the quantum of credit from formal sources to priority sector in in general and primary sector in particular. This has resulted massive financial exclusion with regards to poor in the informal sector occupied in the primary activities. In this backdrop, emergence of micro finance with its informal lending techniques to informal sector of the country is no doubt has the potential to address financial exclusion.


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