Unit 1: Agricultural Co-operative Credit

Agricultural Co-operative Credit

Classification of Cooperatives

Cooperatives can be classified based on what work they do and who they serve. The main types are:

Based on Nature of Activities

1. Agricultural Cooperatives
These serve farmers and people involved in agriculture.

Examples:

• Primary Agricultural Credit Societies (PACS)
• Cooperative Marketing Societies
• Dairy Cooperatives
• Cooperative Agro-processing units

2. Non-Agricultural Cooperatives
These work in non-farm sectors.

Examples:

• Urban Cooperative Banks
• Employee Credit Societies
• Housing Cooperatives
• Consumer Stores
• Industrial Co-operatives

Based on Level / Structure

1. Primary Cooperatives – Village or local-level societies
2. District/ Central Cooperatives – Work at the district level
3. State/ Apex Cooperatives – Highest level, guiding and supporting the lower levels

Agriculture Cooperatives vs Non-Agriculture Cooperatives

Basis	Agriculture Cooperatives	Non-Agriculture Cooperatives
Members	Farmers, rural families	Salaried persons, workers, traders
Activities	Credit, seeds, fertilizers, irrigation, marketing agri products	Housing loans, consumer goods, employee welfare
Purpose	Support farming and rural development	Support urban and industrial needs
Examples	PACS, Dairy cooperatives	Urban Banks, Housing societies

Cooperative Credit

Cooperative credit means loan and financial support given through cooperative societies to their members.

Purpose

• Provide cheap and easy loans to farmers and small businesses
• Protect them from moneylenders
• Increase productivity and income

Who Provides Cooperative Credit?

• PACS (village level)
• District Central Cooperative Banks (DCCB)
• State Cooperative Banks (SCB)
• Land Development Banks (LDBs)

Cooperative Banking Structure

In India, the cooperative banking system for agriculture has three levels (short-term) and two levels (long-term).

A. Short-Term Cooperative Credit Structure (STCCS)

Used for seasonal and short-period needs like seeds, fertilizers, labor during crop season.

Three-Tier Structure

1. State Cooperative Bank (SCB) – Top level (State)

• Controls and directs the whole system
• Provides funds to district banks

2. District Central Cooperative Bank (DCCB) – Middle level (District)

• Provides loans to PACS
• Supervises PACS

3. Primary Agricultural Credit Societies (PACS) – Village level

• Directly give short-term loans to farmers
• Closest to farmers

Medium-Term and Long-Term Cooperative Credit Structure

Used for capital and development purposes, like:

• Buying tractors
• Building wells
• Land improvement
• Modern machines
• Dairy shed construction

Two-Tier Structure

1. State Land Development Banks (SLDB) – State level
2. Primary Land Development Banks (PLDB) – District or Taluka level

Principles of a Good Cooperative Credit System

A strong cooperative credit system must follow these principles:

1. Adequate and Timely Credit

Farmers should get the required loan at the right time (especially sowing time).

2. Low Interest Rates

Loans should be cheaper than private moneylenders.

3. Member Ownership

Loans should be given only to members who participate in the cooperative.

4. Security Based on Character, Not Wealth

Cooperatives trust their members and prefer social security (group guarantee).

5. Diversification

Credit must be given for various needs—crop loan, dairy, equipment, irrigation.

6. Democratic Control

Decisions are taken by members (one member, one vote).

7. Education and Training

Members are trained in financial literacy and cooperative principles.

Advantages of Cooperative Credit

1. Low Interest Rates

Cooperatives provide loans at reasonable and affordable rates.

2. Easy Availability

Farmers can get loans without complex procedures.

3. Protection from Moneylenders

It reduces farmers' dependency on high-interest private lenders.

4. Encourages Savings

Cooperative credit societies also accept deposits from members.

5. Supports Rural Development

Loans help farmers increase production → increases income → boosts rural economy.

6. Democratic and Transparent

Decisions are transparent due to member participation.

7. Collective Responsibility

Members guarantee each other’s credit, reducing risk of default.

8. Productive Use of Loans

Cooperatives guide farmers to use loans for productive purposes.

Constitution and Functioning of PACS

What is PACS?

PACS = Primary Agricultural Credit Society
It is the lowest and village-level cooperative that provides credit and services to farmers.

Constitution of PACS

• Formed by a group of farmers in a village
• Minimum number of members: 10 (varies by state)
• Registered under the State Cooperative Societies Act
• Has its own Bye-laws (rules of working)
• Governed by a Managing Committee (Board) elected by members

Key Functionaries

• General Body → All members
• Managing Committee (Board) → Elected members
• Secretary / Manager → Full-time employee who manages day-to-day work

Functions of PACS

1. Provide Short-Term and Medium-Term loans to farmers
2. Supply agricultural inputs – seeds, fertilizer, pesticides
3. Provide storage and marketing services
4. Promote savings by accepting deposits
5. Help in crop insurance / government schemes
6. Recover loans on time for District Cooperative Banks
7. Guide farmers in good farming practices

Crop Loans (Short-Term Credit)

Crop loans are seasonal loans given to farmers for crop production.

Purpose of Crop Loans

• Buying seeds
• Fertilizer and pesticides
• Hiring labor
• Irrigation
• Harvesting and transportation

Features

• Short-term: 3 to 12 months
• Given through PACS → DCCB → SCB channel
• Interest rate: Low (subsidized under KCC – Kisan Credit Card)
• Security: Usually land records, member guarantee

Reorganization of PACS

Reorganization means improving or restructuring PACS to make them stronger.

Why needed?

• Many PACS became weak or loss-making
• Poor recovery rates
• Mismanagement
• Lack of modernization

Steps in Reorganization

1. Merger of small or weak PACS
2. Dividing large PACS into two for better service
3. Professionalizing the staff
4. Computerization and digital records
5. Training members and managers
6. Better financial support from DCCBs and government

Short-Term (S.T.) Loan Policy and Procedures

Purpose: To ensure farmers get timely loans for seasonal agricultural needs.

Loan Policy Includes

1. Eligibility check

• Must be a PACS member
• Should not be a loan defaulter

2. Loan limit calculation

Based on:

• Land holding
• Type of crop
• Repayment capacity

3. Documentation

• KYC
• Land records
• Crop cultivation plan

4. Sanction and Disbursement

• PACS recommends → DCCB approves → PACS distributes

5. Repayment

• Usually after harvest, within 6–12 months

Linking of Credit with Marketing

This is an important policy to ensure loan recovery and better income for farmers.

What it means?

The farmer must sell his produce through the cooperative society.
The cooperative deducts the loan amount from the sale proceeds.

Benefits

• Ensures loan recovery
• Farmers get fair prices through cooperative marketing
• Reduces exploitation by middlemen
• Increases cooperative’s business

Medium-Term (M.T.) Credit – Purpose and Security

MT loans are provided for a period of 1 to 5 years.

Purpose

For long-term improvements in agriculture:

• Buying tractor/power tiller
• Pump set, sprinkler, drip irrigation
• Cattle purchase (dairy)
• Building sheds or godowns
• Land improvement (leveling, bunding)

Security

• Mortgage of land
• Hypothecation of asset purchased
• Member guarantee
• Insurance of asset (tractor, milch cattle etc.)

NFS Lending (Non-Farm Sector Lending)

NFS = Non-Farm Sector
Loans given by cooperatives for non-agricultural activities in rural areas.

Examples of NFS Activities

• Small shops
• Rural transport (auto, e-rickshaw)
• Handicrafts
• Poultry, fishery
• Small manufacturing units
• Rural artisans (carpenter, plumber, tailor)

Purpose: To generate income and employment in rural areas besides farming.

Micro Credit

Micro credit means very small loans given to poor and low-income families.

Who receives micro credit?

• SHGs (Self Help Groups)
• Women groups
• Landless labor
• Small vendors
• Marginal farmers

Features of Micro Credit

• Loan amount: ₹5,000 to ₹2,00,000
• No heavy documentation
• Group guarantee method

Used for:

• Small businesses
• Animal husbandry
• Home-based work
• Buying small tools / inventory

Benefits

• Empowers women
• Encourages self-employment
• Reduces poverty
• Promotes financial inclusion