| Abstract | Modernization of agriculture, which is based on the modern
techniques of production, has changed the demand for credit over
time. This has lead to the development of formal credit system as
the traditionally existing informal credit system was thought to be
inadequate and exploitative. But the distribution of formal credit
was skewed, thus neglecting the poor masses. This again, has lead
to the reemergence of informal credit system with a revolution in
the informal credit markets. This situation has compelled the
writers, economists, policy makers and planners, to take a fresh
look at the whole question of agricultural and rural credit. The
present study is also one of such attempts. The study explores both
the demand and supply sides of credit. Target groups were farmers
and informal lenders. The assessment of credit needs of farmers
across the categories of farms, indicate that farmers in the
marginal, small and medium categories need production credit (farm
inputs). The need for development credit (for land improvement) has
also been expressed by farmers in almost all the categories. Credit
need for this purpose is also reflected in the lower land use and
cropping intensities in the area. Livestock rearing was considered
by farmers as one of the most profitable activities for which
marginal and small farmers expressed their need for credit. The
production credit needs of marginal, small and medium farmers are
being partially fulfilled while large farmers are successfully
fulfilling their credit needs for this purpose . The area of
operations of formal credit institutions is very limited and there
is skewed distribution of formal credit to medium and large
farmers. The main entry barriers in the formal credit market, for
marginal and small farmers, are imperfect information, difficult
procedures, high transaction costs, influence of large farmers and
influential persons and collateral requirement. The informal credit
markets, on the other hand, were found to be operating
successfully, providing credit to the farmers in all the
categories. The consumption credit in these markets is cheap, as
compared to production credit, which attract farmers to borrow,
despite the fact that they have sufficient liquid resources to
cover their consumption requirements. The ICM is found to be
attractive to farmers because of its informality, familiarity,
proximity and flexibility and above all its positive role in
marketing of agri. products without exploitation of borrowers. The
informal lenders are found to be cost reducing agents due to their
knowledge about agriculture and farmers and have comparative
advantage over formal lenders. The recommendations for planning
include providing credit to farmers, which is not available in the
informal market and taking advantage of informal credit markets
where these are extremely useful and creating competition between
two types of markets where there is an exploitation of borrowers. |