A PILOT STUDY ON THE SOURCES OF AGRICULTURAL FINANCE AND THE CHALLENGES ENCOUNTERED BY FARMERS

Abstract

This paper examines the role of agricultural finance in India's rural economy,
emphasizing its importance in supporting farmers with production, processing, and
marketing activities [1]. It identifies the challenges farmers face in accessing finance,
particularly smallholders, such as high risks, lack of collateral, and limited cooperation
among stakeholders. The complex and unpredictable nature of agriculture makes it difficult
for farmers to secure loans from formal financial institutions. Despite efforts to improve
accessibility, issues like complicated loan procedures, inadequate infrastructure, and misuse
of loans persist. Institutional sources such as cooperative societies, regional rural banks, and
commercial banks play a significant role in supporting farmers, yet non-institutional sources
like moneylenders and traders still dominate, often imposing high-interest rates that
exacerbate farmers’ financial struggles. The paper proposes several recommendations to
address these challenges, including enhancing institutional lending, reducing regional
imbalances, and offering consumption loans. Additionally, fostering better coordination
among credit agencies, improving loan monitoring, and involving small farmers in decisionmaking
processes are essential steps. By modernizing the agricultural finance system, India
can ensure sustainable financial support for farmers, promoting agricultural growth and
overall economic development [2]. Ultimately, a more inclusive and efficient agricultural
finance system can enhance the economic well-being of farmers and contribute to the
country's rural economy.