Reasons for limited formal nature of credit to farmers

♤ Banks’ reluctance to lend to small farmers which is further accentuated by inherent risks (say, deficit or unseasonal rains) associated with farming. Partly, the decline could also be due to rising costs of cultivation, inflationary pressures, and more people moving out of farming

♤ A large share of credit has channelized through non-bank financial intermediaries without collateral; in contrast to commercial banks, which requires collateral. But they charged higher rate of interest and resorted to coercive practices (example: microfinance crisis in Andhra Pradesh. The credit disbursed by MFIs has not resulted in raising agricultural productivity because these loans require regular monthly repayments and regular meeting and oversight on borrowers)