In the villages no form of credit organization will be suitable except the cooperative society

Q."In the villages itself no form of credit organization will be suitable except the cooperative society." All India Rural Credit Survey. Discuss this statement in the background of agriculture finance in India. What constraints and challenges do financial institutions supplying agricultural finance face? How can technology be used to better reach and serve rural clients? 

Ans. Agricultural credit serves as an instrument for stimulating increase in output, income and employment. In the villages itself no form of credit organization will be suitable except the cooperative society.

The cooperative society is managed and run by the people, who are engaged in the same area of work and understands the requirements and needs of the work. The success story of various cooperative societies in the recent past supports this statement profoundly.

The cooperative credit institutions were evolved mainly to check the spurious practices of the moneylenders and to provide access to credit to various sections of the population at reasonable rates of interest.

Cooperative banks are organized and managed on the principle of cooperation, self-help and mutual- help and function with the rule of "one member, one vote", function on "no profit, no loss" basis. Cooperation as principle does not pursue the goal of profit maximization. 

Constraints and challenges faced by financial institutions supplying agricultural finance

• Poor recovery of loans.

• Differential rate of interest when compared to commercial and private banks.

• Frequent debt waiver by the government makes farmers undisciplined.

• Restricted area of operation of the primary agricultural cooperative societies.

• High transaction costs as well as the traditional policy of undiversified lending.

• The cooperative banks are struggling to conform to the banking norms and to mobilize adequate resources to meet the requirements of the farmers.

• Dual control by both RBI and State Government and political interference, lack of computerisation and technology upgradation.

• The sluggish growth of agrarian economy and a series of poor crop seasons affected by adverse weather conditions. 

Technology can be used for better reach and to serve rural clients in the following manners

•  By creating a database of farmers, the credit and financial institutions can communicate with and access beneficiaries easily.

•  Use of smart cards will increase the authenticity and reduce identity theft in obtaining credit benefits.

• Mobile banking, use of banking correspondence and internet banking facilities increase the reach and brings more awareness among the farmers.

• Biometric technology can make the threat of future credit denial credible because it makes it easier for financial institutions to withhold new loans from past defaulters and to reward responsible past borrowers with increased credit.