More than 50 percent of rural credit comes from the informal sector which is a major concern for the rural economy.
Bhaskar Mudegowdu, 54, lives in a remote village called Holalu which is 29 kilometres away from the taluk Hoovina Hadagali in Bellary district, north Karnataka. He is a farmer by profession and lives in a small house with his wife and younger son. Bhaskar took a crop loan and insurance from the SBI branch near his village, which he still struggles to pay. The major guilt which consumes him and brings a dejected look on his face is that bank denied education loan for his eldest son’s higher studies. He had to take dowry from his son’s in-laws to pay for his M.B.A fees in Davangere College. Dowry is an offence under Section 498Aof Indian Penal Code.
Bhaskar’s plight and complaints which he has against the government is similar to farmers from other parts of the country.
Indian agriculture is mainly carried out on small and marginal land holdings. According to RBI, 80 percent of farmers have inadequate income and as a result of which have negligible to no savings. However, they have to invest money in their farms in the form of seeds, machinery, fertilisers and other inputs. As most of them have no savings they are heavily dependent on credit. Low income of farmers is attributed to many reasons ranging from inadequate water, crop failure, not getting the right amount for their yields and not growing crops in accordance with the geography of the area. Previously, money was mostly borrowed from local money-lenders and other informal agents who charge high-interest rates, which is still prevalent in parts of India. In order to tackle the distress of the farmers, the government of India has taken huge steps in expanding the formal banking network into rural areas following bank nationalisation.
Bhaskar’s son was not eligible for an education loan as Bhaskar has still not cleared his crop loan which he took in the year 2013. He tried convincing the bank that crop and education are two things but of no use as in bank eyes, he is a bad asset to put money in. He has a land of five acres on which he grows chickpeas and peanut. He took a loan of 2.5 lakhs rupees. Bhaskar has his land papers which most of the small-scale farmers do not possess. Chief Minister of Karnataka, HD Kumaraswamy announced loan waiver worth Rs 34,000 crores in July last year. Bhaskar has yet to receive any benefit from it and says, “They only come in power and say things and time taken by them for fulfilling their promises really long. Loan waiver also doesn’t help us in a huge way as next year a similar situation arises”. Lack of rain has affected Bhaskar’s produce a lot and water in borewells is not sufficient for him. He adds, “Banks earlier used to send notices, but they have stopped sending now as they are also waiting for orders on loan waiver.”
According to RBI, more than 50 percent of an estimated 600 million of credit comes from the informal sector in India. Small and marginal loans face a high-interest rate of 36 per cent and most loans are taken for income generation. This indicates that there is a shortage of formal loans even for productivity purpose. Private money lenders demand a hefty interest and also indulge in a lot of foul play by harassing small scale farmers.
Many farmers come late in the afternoon to a coconut seller right off the main road of Holalu village. The place is abuzz with farmers who refresh themselves by drinking coconut water. One of the farmers among them is Bhimanda, a 45-year-old small scale farmer who borrowed Rs 10,000 from village level money lender. He had to pay Rs 450 per week for 40 weeks, which is equal to 10 months. He has an account in a bank but never uses it. When asked why he says banks serve no good purpose for a small and poor farmer like him.
Private lenders also take advantage of low financial and law literacy and harass farmers a lot. Kortesh Siddappa an 80 years old resident of Dasanahalli has seen many farmers being driven to the police station by private money lenders. He says, “If any farmer fails to pay back the money first, they come to warn them and later send cops who threaten to take away their belongings.”Most petitions against harassment by private lenders are reported in Huvina Hadagali police station. The police station is not that big a building with two floors, including the ground floor. It is located in taluk Huvina Hadagali. The lockups are mainly empty and are being used as storerooms. Right in front of the entrance, there is a desk where head constable sits. His one feature strikes first which is the case with most of the policemen in India, a protruding belly. Nagaraj Kotanal, head constable of Huvina Hadagali police station says, “Villagers are afraid of private lenders”. Farmers are generally fooled by asking to sign on an empty paper. Later when they are not able to pay back the money the lenders fill up the paper with one-sided terms and conditions which they didn’t necessarily discuss with farmers at the time of lending. Farmers file petitions against such cases and back out before even the case can be filed. Bhaskar said, “I am afraid of private lenders and that’s why never went to them for money.”
According to an RBI report, 80 percent of farmers are small and marginal with no savings. This implies that access to credit for incoming generating activity is essential. It is especially true for dry states like Karnataka where farmers spend a substantial amount of money on inputs. It states that less than 40 percent of farmers in Karnataka has no access to any form of credit. Institutional sources are inclined towards large farmers and slightly towards no-marginalised social categories.GS Kotresh, CEO of Co-operative Society in Huvina Hadagali said, “While giving out agricultural loans we monitor and check the size of land and also the quality of it. If the land is dry, we generally don’t give a loan. Similarly, if the land is of a smaller size, we don’t give much amount. It is all a precautionary measure to make sure we don’t incur losses.” Due to this, many farmers who suffer from crop failure get a major blow as not only they fail to pay back the amount. Such farmers’ land also gets less evaluation comparatively because of which the money offered by banks to them on loan also decreases significantly. Such farmers also lack fund to buy crop insurance due to lack of funds.
One other major factor which acts as a hindrance for rural credit system is many farmers don’t have RTC (Rights, Tenancy and Crops). RTC is required by banks when farmers apply for a crop loan. Due to inadequate documentation of landholdings in India, many farmers suffer as they are not given RTC-based loans. Many people inherit land from their predecessors who are grandparents or fathers. As their predecessors never maintained land documents, they face problems when applying for crop loans. Chandrasekhar a farmer of Kattebennur village told a similar story, “I have got two acres of land from my father; my elder brothers also got some part of the total land. This land has been in our family since generations.” As his family never possessed land documents, he can’t get RTC-based loans. It is one of the major factors that farmers go to private money lenders for money. Bhaskar added, “Some of my friends don’t have proper land documents so they take other loans and use that money, instead of applying for a crop loan.” Distribution of lands over generation also leads to less landholding per person. Decreasing the area of land per farmer also makes it difficult for them to get sufficient credit for farming their land.
Taluk office of Huvina Hadagali is a big structure but with little or no maintenance. It is a quite busy place with a lot of people moving around who have come there for different works. The registrar’s office is on the second floor of the building which has long queues of people waiting outside the office. Many have come here to get signature on RTC from the head registrar in order to get RTC-based loan. Inside the registrar office, there is total chaos as people are giving papers to officials in traditional India way, no queues and some work also being done under the desk. People slyly hand bribe along with their documents, the bribe being two thousand rupees. People who give bribes are considered as VIP because their documents get to the final destination quicker. People who go the straightway have to wait for a longer time and there is also a high probability that their forms will be rejected. D Gadalingappa, the head registrar in Huvina Hadagali taluk office, says, “If people don’t have a proper land document, we don’t sign their papers which are given to them from banks. In 2017-18 3,000 to 4,000 land registrations have been done.” He straight away denies of any situation in which people don’t possess land documents saying it is not possible for someone to not have any form of a record of their lands.
The RTC-based loan is a long procedure and takes a lot of time. In order to get an RTC-based loan applicant has to get no due certificate from all the nearby bank branches which area time and money eating process. People are also opting for a gold loan these days as the process is faster and easier to get. According to RBI data, 3,716 farmers took a gold loan for agricultural and allied activities in Mandya district. Similarly, in Chitradurga district, 1,119 farmers have taken gold loans. The main reason for the varying number of gold loans is the economic strength of the district. One advantage which RTC loan has over the gold loan is that the amount can be higher as it is not dependent on the mortgage value of the gold.
Many farmers generally know that bank rates of banks are lower than that of informal sources. According to an RBI report, only 40% of farmers know about the scheme of reimbursing interest rate. They even lack knowledge of the exact rate of interest which they are being charged. Similarly, only 5 percent of farmers in Karnataka has knowledge of Kisan Credit Card (KCC) and its benefits. Borrowers also have limited knowledge of many schemes which are announced by the government. Schemes such as Pradhan Mantri Mudra Yojana are also unknown to them. It is a scheme launched by the government with a vision to bring more people of rural India into a formal financing system by offering affordable credit to them. It enables a borrower to borrow money from all public sector banks, Regional Rural banks, and Cooperative banks, Private Sector Banks, Foreign Banks, Microfinance Institutions (MFI) and Non-Banking Finance Company (NBFC) for loans up to 10 lakh rupees for non-farm income-generating activities. Bhaskar had no idea about MUDRA scheme and started laughing when he found out that it is a central government scheme. Bank charges a certain amount of fee when a borrower applies for a no due certificate, in order to get the subsidy on interest rates. On another hand a simple declaration by the bank is required for subvention of interests on gold loans; hence a growing number of people are opting for gold loans.
Mainly due to bad loans banks are more careful and strict when it comes to lending money in rural parts. As many farmers are still in debt it puts a stress on the finances of the bank as they run low on the lending amount. SBI branch in Holalu village is a really old building with a worn-out board. It had lees crowd compared to other banks in the region. Mahesh Kumar, Assistant Manager said, “We look for experience when people come for MUDRA loan as for whether they can pay back the amount or not. We can’t give it to too many people as of financial constraint. We have already faced issues because of bad loans.” People also complain about the time taken by banks to pass loans which are around 15-20 days compared to 7 days in cities. Chandrasekhar Doddamane, a 38-year-old resident of Huvina Hadagali said that “When I went to get a loan under MUDRA scheme bank official said that we haven’t received money back from people who took a loan to buy cows, how can we give money for your business.”
Another practice which is on a rise these days is borrowing money from the bank and then lending that amount to other individuals. People take loans and lend them on higher interest to other people. This is generally practised by farmers with larger landholdings as it is easier for them to get loans. These farmers, in turn, lend this money to small scale borrowers at higher rates. The situation is getting worse due to loan waivers announced by the government as borrowers take money from the bank with no intention of returning it back. They don’t pay interest and wait for the government to waive off loans.
One other activity of farmers which affect the rural credit system is a misuse of crop insurance. Some farmers burn their crop in the middle of the season and start growing another crop. The farmers who burn their own crops have crop insurance and they get money from banks for their losses. All these are generally carried out by big scale farmers. Such practices also take a toll on the finances of banks.
Lack of proper connectivity from villages to banks is one of the reasons why people cannot access credit. Villagers of Dasanahalli in Bellary district have accounts in the nearest bank. They keep their cash with them and rarely go to the bank. One of the residents of this village Manjunath who is a farmer and grows maize doesn’t keep is money in banks as it takes time for him to go to the bank, which is a big problem especially in harvesting season as it consumes his entire day. Some villages also don’t have bus connectivity which adds to the problem as private vehicle service is slow and can’t keep with the number of people travelling daily. Sometimes one has to wait for hours to get transport to the nearest bank.
Bellari district has a total number of 296 banks and it has an area of an 8447-kilometre square, which means it has one bank every 28-kilometre square area. The distribution of banks is not even in all of its area. As many as 9-gram panchayats in the Huvina Hadagali taluk has no banks. Under every gram panchayat comes 3-4 villages.
“A larger footprint of microfinance will change credit system in rural India drastically,” said Sailesh Haribhakta, a Chartered Accountant currently working with L&T Financial Services and Bennett Coleman Co Limited. “I am a chairman of a company which infused 12,000 crore rupees in microfinance,” he added.
“Government has spent a lot of money for rural education. The move of introducing financial literacy in regional language by the government has done a decent job. A lot more has to be done to create more awareness and better quality of literacy,” explained Sailesh.
“A major overhaul is required to improve the land registration system in rural parts of India. Most essential of the required changes is electronic registration of land, likes of which is done in urban areas. We can use A-Khata and B-Khata system to keep track of lands. If we are able to do this it will really speed up the time taken to process and pass RTE based loans. Benami act can also be brought in play if electronic registration is done efficiently,” said Sailesh
“Regional language is the key to penetrate and educate rural people about various financial norms and schemes. We need to make banking services accessible, then available and lastly for the correct purpose. Strict credit discipline also needs of the hour to improve loan repayments. Laon waivers are surely not the correct practice, as it is only effective in short terms not in the longer run,” informed Sailesh.