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Briefly explain the main sources of agricultural finance in India?
The Credit requirements of agriculture are of three types viz.1. Short -Term2. Medium - Term3. Long- Term
Long Term Credit :The period of long-term credit is generally 5 to 20 years or even more in some special cases. In any  industry, long-term investment is necessary, to create permanent assets which give returns over a period of time. The permanent investment is not only necessary for a particular industry but even for the country. Because for continuity of production and progress of the country. This applies to agriculture also. In Agriculture, long-term investment comprises of sinking well, land levelling, fencing and permanent improvements on land purchase of big machinery like tractor with its attachments including trolleys, establishment of fruit orchard of mango, cashew,coconut, sapota (chiku), orange, pomo granate, fig, guava, etc. There are many other items of long-term capital investment. Investment once made in the beginning continuous to give returns over a long period. Fruit orchards particularly do not give any income in the first 4 - 5 years as in case of other seasonal crops. So the expenditure incurred in the first 4-5 years becomes a capital cost.All the long-term investments mentioned above require large amounts of funds. Although they have good potential to give returns in future, individual farmers have no financial capacity to make such costly investments from their own funds because they have no savings or very little savings. Therefore, they have to resort to bank borrowing to meet their such needs. The financial criteria terms and conditons procedures of granting L.T.loans are altogether different from short-term loans : Even the bank or agency providing LT loans is separate due to its particular mode or system of raising capital and graign.Land Development Banks :The special banks providing LT Loans are called Land Development Banks (LDA). The history of  LDB’s is quite old. The first LDB was started at Jhang in Punjab in 1920. But the real impetus to these banks was received after passing the Land Mortgage Banks Act in 1930’s (LDB’s were originally called Land Mortgage Banks). After passing this Act LDB’s were started in different states of India.Structure :These Banks have two-tier structure1. Primary Land Development Bank at district level with branches at taluka level.2. Control or State Land Development Bank. All primary Land Development Banks are federated into Central Land Development Bank at the State Level. In some States, there is “ Unitary structure” wherein, there is only one State Land Development Bank at the state level operating through its branches and sub-branches at district and below levels.Raising Funds :The main function of raising funds is carried out be the Central or State Land Development Bank which can really deal with the money market of the country effectively and advance loans to primary LDB’s. The sources of funds of State LDB’s are:-1. Share capital.2. Issue of debentures3. Loans from NABARD4. Reimbursements of subsidies from the Govt.5. Other funds.
sources are

  1. Government Subsidies

    • Public authorities in India provide grants, subsidies and tax incentives to organizations or individuals abiding by governmental guidelines and willing to invest in designated fields or sectors. Such guidelines could mandate building and maintaining agricultural infrastructure for periods of time, hiring local farming specialists and investing in economically disadvantaged areas in the country. Officials could also provide financial assistance---through export finance programs---to exporters who invest in designated crop categories.

    Foreign Direct Investments

    • Foreign organizations willing to establish local businesses in the country engage in joint-venture agreements with Indian partners, invest in farming companies operating in zones with profit potential, acquire local operators or build new subsidiaries. Multinational organizations engaged in development aid, such as the International Monetary Fund or the World Bank, also may provide financing to farmers. Such institutions could provide low-interest loans, grants or subsidies to entities with funding needs.

    Bond Issuance

    • Farming companies may raise funds to finance expansion projects, meet operating needs and maintain adequate working capital ratios by issuing debt products on India's securities exchanges such as the Bombay Stock Exchange and the Delhi Stock Exchange. Entities receive proceeds from bond investors---or bondholders---and pay interest periodically. They reimburse initial amounts loaned at maturity. Organizations not listed on securities exchanges may raise cash by selling debt products to investors privately. Investment bankers help arrange such private transactions.

    Equity Issuance

    • Organizations may raise cash by selling shares of equity to investors on securities exchanges. Entities not listed on exchanges may, under the guidance of investment bankers, sell shares privately to investors. Equity buyers---also called equity holders, shareholders or stockholders---hold voting rights and are invited to annual shareholders meetings. They also receive periodic dividends and make profits when share values increase. For example, a New Delhi-based farmer seeking to finance large fertilizer purchases could issue shares on securities markets and use proceeds to undertake such purchases and issue dividends when crops are sold.

    Farm Loans

    • Farmers may apply for private loans, also called farm loans, with financial institutions such as banks, insurance companies and mutual funds, if they are not listed on securities exchanges or funding costs on such exchanges are high. They receive funds from lenders and agree to pay fixed amounts periodically, usually monthly or quarterly. Lenders verify farmers' financial information, business-performance indicators, operating metrics and working capital constraints to grant loans.


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