Financing inclusion through Kisan Credit Card for small holders' farmers in Manipur

Kh Rishikanta Singh *

Credit is a critical component for bringing economic growth and development. It is a means to break the vicious cycle of poverty of low income, low saving, low investment, low productivity and low return from farming especially for the small and marginal farmers. Access to finance is an important policy initiative that enable people to transform their livelihood through increase in production and adopting various employment generating activities.

Timely availability of credit empowers the farmers to purchase critical farm inputs which are necessary for successful farming. As per NSS 77th round, the small and marginal farmers owning less than two hectares of land constitute 89.4 per cent of the total agricultural household of the country. Unlike large farmers, the small and marginal farmers have poor capital resources, poor purchasing power, lack of access to credit and lack of remunerative income.

According to Report of the Internal Working Group to Review Agricultural Credit-2019, institutional or formal sources were preferred by agricultural households to avail credit as approximately 61 per cent avail credit from it.

However, a significant portion, i.e. approximately 30 per cent of agricultural households’ avail credit from non-institutional or informal sources which is a cause of concern. It is reported that the access to institutional credit for small and marginal farmers was only 41 per cent which is very less.

The availability and access to institutional credit especially in rural areas of North East region is very limited which hamper the socio-economic growth and development of the region. Though a number of improved technologies on farming and crop cultivation are developed and available, the adoption level is very less due to the poor purchasing power of the small holder farmers.

To solve the problem of dependency to informal source of credit and to deliver the agricultural credit requirement, Kisan Credit Card (KCC) scheme was introduced in 1998. It aims to provide adequate and timely credit to the farmers with flexible and simplified procedure. This Scheme is implemented by Commercial Banks, Regional Rural Banks, Small Finance Banks and Cooperatives Banks.

Short-term crop loan upto Rs. 3 lakh is provided to farmers at an annual interest rate of 7 per cent. Prompt Repayment Incentive (PRI) @ 3% per annum is provided to those farmers who promptly repay their loans within one year of disbursement.

Kisan Credit Card once issued is valid for 5 years subject to an annual review. From the year 2018-19, Government of India has introduced KCC scheme for Animal Husbandry and Fisheries in order to provide short-term working capital loans to Animal Husbandry and Fisheries farmers. As on 31st March 2022, there were 268.71 lakhs operative KCC account in the country with a total outstanding loan amount of Rs. 4,76,283 crores (RBI Annual Report 2021-22).

The availability of institutional loan in the form of KCC loan is a boon to the farmers of Manipur where dependence on local money lender is high. KCC is getting momentum in the state due to creation of large-scale awareness about the scheme and active involvement of bankers in the process.

The formation of a large number of Farmers’ Club, Self-Help Group and Farmer Producer Organizations (FPOs) at village level under the initiative of NABARD, ICAR, KVKs and other institutions has scale up the adoption of KCC scheme in the state. Despite the KCC scheme being the dominant source of short-term agricultural credit over the past decade, till date only a limited attempt had been made to study its economic evaluation and impact.

In order to understand the impact of KCC in rural areas of Manipur, a study was conducted based on primary data collected from 4 districts of Manipur viz. Imphal East, Imphal West, Thoubal and Bishnupur from both beneficiaries and non-beneficiaries of KCC. The study found that most of the beneficiary household (89 per cent) were members of either Farmers’ Club or Self-Help Group compared to only 18.5 per cent in case of non-beneficiary.

Farmers’ Club and Self-help Group act as a source of information and awareness creation for availing KCC. Also, the Chief Coordinator of Farmers’ Club and President of Self-Help Group take lead role in compiling the required documents for availing the KCC. Also, each Farmers’ Club and SHG take group responsibility for repayment of loan in case if any members are not able to repay the loan due to unavoidable circumstances. These collective approach and responsibility sharing of village level informal group help the bank for readily issue of KCC loan.

The study shows that moneylender continues to play a crucial role in financing the farmers where there is non-availability of KCC as 48.96 per cent of the non-beneficiary household borrowed money from informal sources. Based on the study, the reasons for non-adoption of KCC schemes as perceived by the non-beneficiary farmers are lack of awareness about the scheme, interested but not applied yet, lack of knowledge about the banking system, lack of required document and certificate to get KCC, small land holding, bank located at a far distance and farming not profitable.

Necessary initiatives need to be taken to address these problems for ensuring large scale adoption of KCC by the farmers. The average amount of KCC loan availed by the beneficiary was Rs. 35,675 per household while for non-beneficiaries the average amount borrowed was higher ie. Rs. 50,781. The amount of KCC loan varies according to the lending agencies, scale of finance, type of crop grown and size of land holding.

Paddy cultivation was the major farming activities of both the group. The beneficiaries have a higher level of adoption of improved rice varieties like RC Maniphou 7, RC Maniphou 10, RC Maniphou 12, RC Maniphou 13, CAU R1, KD and Hybrid seeds.

Due to use of high yielding rice varieties and adoption of package of practices, it was found that the beneficiaries had a higher average yield ie. 5.08 tonnes per hectare compared to 3.99 tonnes per hectare for non-beneficiaries. The number of households adopting winter and summer crop cultivation after kharif rice were higher among the beneficiary.

A huge difference in the rate of interest of money borrowed was observed. For KCC loan it was 7 per cent per annum while for non-beneficiaries the minimum interest rate charged for borrowing from informal sources was 39 per cent per annum. Borrowing from money lenders, friends, relatives, etc are the non-institutional sources of credit for the non-beneficiaries.

The repayment of credit was very poor for both groups. Of the total amount borrowed, the average amount repaid was only 29 per cent for beneficiaries and 6 per cent for non-beneficiaries. The problems faced by the beneficiaries for poor repayment of loan are low yield, high cost of cultivation, crop failure due to natural calamities, no earning in off season, repayment of old debt and lack of good marketing system. Size of land holding, farming experience, education level and household income had a positive effect on loan repayment while high interest rate had a negative effect.

Farmers growing winter and summer season crop after Kharif rice have a higher chance for access to KCC loan because there is round the year employment generation and higher earning of income. Extension contacts of the farmers with ICAR, KVK, agri and allied department, extension personnel’s, etc boost the moral and confidence of the farmers for adoption of new technology and farming practices which ultimately increase the farm income thus making them more creditworthy.

Many of the farmers are not knowing exactly whether they are making profit or losses in farming as they seldom make farm record. Farming is a business which involves capital, labour and machinery. Maintaining daily record of various income and expenses by spending few minutes daily is very important.

The reference of record of the various activities, income generated and expenses of the previous year’s provide valuable information, which helps the farmers in making better financial decision and farm planning for the coming year. It also provides idea on how to allocate limited financial loan facilitates for obtaining the best return from farming.

By and large, the study revealed that financial support to the small holder farmers through KCC is a breakthrough initiative for adoption of new technology and doubling of farmer’s income. The availability of easy and cheap credit in the form of KCC is a boon to the poor farmers but at the same time, a strong monitoring mechanism is required for ensuring effective use of the credit, so as to increase the crop production and farmer’s income thereby increasing the loan repayment rate.

With a view to achieve the long-term benefits of the scheme, financial literacy programme needs to be conducted at village level. Along with this, maintaining proper farm record, inculcating good banking practices and adopting new technology in farming is need.

For safeguarding the farmers from crop failure and losses due to natural calamities, compulsory crop insurance for all KCC beneficiaries should be provided and strong linkages with extension experts should be developed. To meet the requirement for increase cost of cultivation, KCC loan amount need to be increased.

For improvement of the socio-economic condition and livelihood status of the smallholders’ farmers, institutional financial assistance should be made available to all eligible farmers of the state.