Financial Literacy for Farmers

Kisan Credit Card Scheme

The Kisan Credit Card Scheme aims at providing timely and adequate credit to farmers to meet their needs at the time of crop production (cultivation expenses), besides meeting contingency expenses. It also covers expenses related to ancillary activities through simplified procedures in obtaining loans as and when needed.

Features of KCC

• KCC borrowers shall be issued an ATM-cum -Debit card to enable them to withdraw money from KCC accounts through ATMs and make payments through PoS terminals.
• The KCC will be in the nature of a revolving account. Credit balance in the account, if any, will fetch interest at the savings bank rate.
• Collateral security is waived for a loan limit of up to Rs. 1 lakh.

Utility of KCC

• To meet the short-term credit requirements for cultivation of crops.
• To meet Post-harvest expenses.
• Loan for marketing of farm produce.
• Working capital for maintenance of farm assets and activities allied to agriculture, like dairy animals, inland fishery, etc.
• Consumption requirements of farmer households.
• Investment credit requirement for agriculture and allied activities like pump sets, sprayers, dairy animals, etc.

While 10 per cent of the short-term limit under KCC can be used for household consumption purposes, it is advisable not to divert more funds for consumption expenditure. The purpose of KCC is to meet your crop loan requirements. Large amounts spent on household expenses from KCC funds will affect your capacity to generate income. The income from your farm activities helps you repay the outstanding loans under KCC. When you divert funds away from crop activities, you may not be in a position to repay your loan.

Prompt Repayment of Crop Loans has Several Benefits

• Borrowing Crop loans from bank at subsidised interest rate: A 4 percent rate of interest for short-term crop loans up to Rs. 3 lakhs during 2018–19 (Interest Subvention Schemes of Government of India). To be eligible for the 4 per cent rate, a farmer should repay the loan within the due date set by the bank; in any case it cannot exceed one year.
• Advantage of repaying loan and interest on time improves your Credit score.
• It makes you eligible for a higher loan amount next time.

Avoid Distress Sale of Farm Produce

Even when you have a good harvest, the job is only half done. You need to sell your produce at good prices.

Use warehouses

If you feel you are not getting a fair price, store your produce in warehouses against warehouse receipts. You will get financing from the bank for your immediate cash needs-the benefit of interest subvention will be available to small and marginal farmers having a Kisan Credit Card (KCC). This will be for a further period of up to six months post-harvest and at a rate of 7 per cent against negotiable warehouse receipts for keeping their produce in warehouses.

Crop insurance

Pradhan Mantri Fasal Bima Yojana (PMFBY)

• Comprehensive insurance cover : PMFBY provides a comprehensive insurance cover against crop failure, thus helping in stabilising the income of farmers and encouraging them to adopt innovative practices.
• Low rates of premium : PMFBY is available to farmers at very low rates of premium: up to a maximum of 1.5% per cent of the sum insured for Rabi; up to 2 per cent of the sum insured for Kharif, food crops, pulses and oilseeds; and up to 5 per cent of sum insured for annual horticulture/ commercial crops. This scheme provides insurance cover for all stages of the crop cycle including post-harvest risks in specified instances.
• The difference between premium and the rate of insurance charges payable by farmers shall be shared equally between the Centre and State
• The scheme is compulsory for loanee farmers obtaining crop loan/KCC account for notified crops. However, it is voluntary for other/non-loanee farmers who have insurable interest in the insured crop(s).
• Three levels of indemnity (Protection against legal responsibility, loss or financial burden : 70 per cent, 80 per cent and 90 per cent - corresponding to crop risk in the areas shall be available for all crops.
• Cover for yield losses from various natural calamities : Yield losses due to: (i) Natural fire and lightning; (ii) Storm, hailstorm, cyclone, typhoon, tempest, hurricane, tornado, etc.; (iii) Flood, inundation and landslide; (iv) Drought, dry spells; (v) Pests/ diseases, etc., post-harvest losses and loss/damage resulting from occurrence of identified, localised risks (e.g., hailstorm, landslide, inundation) affecting isolated farms in the notified area are covered under the scheme.

Assistance from banks during Natural calamities

Do not lose hope even if you lose your crop due to Natural Calamities. Inform your Bank of the Extent of Crop Loss and Seek Assistance from the Bank

Once the central/state Government has declared your area as affected by a natural calamity (e.g., cyclone, drought, earthquake, fire, flood, tsunami, hailstorm, landslide, avalanche, cloud burst, pest attack and cold wave/frost), and if the crop loss is assessed to be 33 per cent or more, it is imperative that you approach the branch of your bank that has provided you the loan, as your repaying capacity gets impaired due to the damage caused by the natural calamity.

What can the bank do for you?

• Convert the principal and interest on your short-term loan into a term loan.
• In all cases of restructuring, a moratorium period of at least one year will be considered. Further, the banks will not insist on additional collateral security for such restructured loans.

• Short-term loans (crop loans) : A maximum period of repayment of up to two years (including the moratorium period of one year) will be allowed if the loss is between 33 per cent and 50 per cent. And if the crop loss is 50 per cent or more, the restructured period for repayment may be extended to a maximum of five years (including the moratorium period of one year).
• Agriculture Loans -  Long-term (Investment) Credit: The existing term loan instalments will be rescheduled keeping in view your repaying capacity and the nature and extent of the natural calamity.

Source : RBI's Financial Literacy for farmers