Micro Loans for Agriculture: Financing Small Farmers

When it comes to farming and agriculture, farmers often face financial challenges in accessing credit and loans to improve their business. Taking a note of this, banks have introduced customised agriculture loans for farmers. Such loans come with lower interest rates compared to personal loans and flexible repayment tenures. These micro business loans are designed to uplift the business and livelihood of farmers across India. In this article, we will explore the concept of micro loans for farmers, the benefits they offer, and how they are helping small farmers secure the funding they need. 

What are Micro Business Loans for Farmers?

Micro business loans for farmers are small-scale loans or line of credit that cater specifically to the financial needs of small agricultural businesses. These loans provide access to capital for purchasing seeds, fertilisers, equipment, or livestock. The loan amount is typically lower compared to traditional bank loans and is tailored to meet the unique requirements of small farmers.

Approximately 30% of all farmers in India access agriculture credit from formal financial institutions. This means a significant portion of 70% are reliant on informal sources or completely excluded from any form of credit. However, that is changing fast, as many small finance banks like Ujjivan SFB and MFIs are now playing a vital role in bridging the lending gap to meet small farm loans. 

Types of Agriculture (Farmer) Loans Available

Let’s understand the different types of agriculture loans offered by Ujjivan Small Finance Bank

1. Kisan Pragati Card (KPC) Crop Loan

Kisan Pragati Card (KPC) Crop Loan is specifically designed for crop financing. You can get cash credit for cultivation, overdraft facility for farming, and term loans for investing in your farming business. The loan repayment tenure ranges from 1 year to 5 years. Additionally, you can prepay or foreclose your loan at no extra cost (zero loan foreclosure charges). The interest rate for overdraft facility is 14.99%, for cash credit it’s 16.99% and for term loan it’s 18.99%.

2. Kisan Pragati Card (KPC) Poultry Loans

Kisan Pragati Card (KPC) Poultry Loans are tailored for poultry farmers and offer financing for poultry unit capital requirements. Both term loan and overdraft facility are available. You can use the term loan to develop your poultry unit. The repayment tenure ranges from 1 year to 5 years. The interest rate for overdraft facility is 16.99% p.a. and for term loan is 18.99% p.a.

3. Kisan Pragati Card (KPC) Pisciculture Loan

Fish farmers can now elevate their business with Kisan Pragati Card (KPC) Pisciculture Loan. You can apply for term loan or overdraft facility as per your business capital requirements. The loan repayment tenure ranges from 1 year to 5 years. The interest rate for overdraft facility is 16.99% p.a. and for term loan is 18.99% p.a.

How Micro Loans are Benefitting Farmers in India?

Micro loans are significantly benefitting farmers in India, particularly small and marginal farmers (SMFs), by providing them with access to essential financial resources. Here are several key ways in which micro loans have positively impacted the agricultural sector:

1. Increased Access to Credit

• Formal Financial Inclusion: Microloans are expanding access to formal credit sources for farmers who previously relied on informal lenders. This shift has reduced their dependence on moneylenders who often charge high interest rates.
• Growth in Agricultural Credit: Agricultural credit disbursement in India increased from ₹8.53 lakh crore in 2014-15 to ₹15.96 lakh crore in 2019-20, marking an 87% growth. In FY24, agricultural credit surpassed targets, rising by 15% to reach ₹24.84 trillion, demonstrating continued growth in lending to the sector. This increase has been particularly beneficial for small and marginal farmers, who have seen improved access to necessary funds. 

Example: Consider the case of Priya, a farmer in a remote village. She wanted to expand her organic vegetable cultivation but did not have access to banking services due to her geographical location. With the help of agriculture credit, Priya secured a micro loan and invested in her farming business without having to travel long distances.

2. Enhanced Agricultural Productivity

• Investment in Inputs: With access to microloans, farmers are investing in high-quality seeds, fertilisers, and modern farming equipment, leading to improved crop yields and productivity. This financial support has enabled them to adopt better agricultural practices and technologies. 
• Diversification of Activities: Microloans have allowed farmers to diversify their agricultural activities by investing in allied sectors such as livestock, poultry, and aquaculture, which contribute significantly to their income. 

3. Risk Mitigation

• Crop Insurance: Many microloan programmes are paired with crop insurance schemes that protect farmers against losses due to natural calamities. This safety net has reduced the financial burden on farmers and has helped them recover more quickly from setbacks. 
• Sustainable Practices: Access to credit has enabled farmers to implement sustainable agricultural practices that has enhanced resilience against climate change and other environmental risks. 

4. Economic Empowerment

• Increased Income Levels: By improving productivity and enabling diversification, microloans are contributing to higher income levels for farmers. This economic empowerment has helped lift many out of poverty and improved their overall quality of life. 
• Job Creation: The growth of agribusinesses and agro-industries resulting from increased agricultural productivity has created job opportunities in rural areas, further contributing to economic development.

Calculating the Impact: A Sample Scenario

Let's consider an example to understand how micro loans are impacting a farmer's life.

Rajesh is a small farmer who cultivates vegetables on two acres of land in a semi-urban area. He wants to expand his farming operations but lacks the necessary funds. Rajesh approaches Ujjivan SFB for a micro loan of ₹2 lakh at an interest rate of 12% per annum for a tenure of three years.

With the agriculture credit, Rajesh invests in modern irrigation systems and purchases high-quality seeds and fertilisers. As a result, his crop yields increase by 30%, translating into higher profits. He is now able to expand his farming operations, increasing his income and improving his family's standard of living. This sample scenario highlights how small farm loans can provide farmers like Rajesh with the necessary financial support to enhance productivity, increase income, and create a sustainable livelihood.