Crop Loans: The Process & Issues

Updated: Jul 28, 2020

India being an agrarian society hosts a whopping percentage of its population having their main occupation as farming. In which 82% are small and marginal farmers. In the year 2019 -2020 India has seen a record of food grain-production with 292 million tonnes. Even today during the Covid-19 crisis a lot of small and medium scale businesses took a large hit but, the agriculture sector was the only sector which was working day and night and supported us at the hour of need. All this makes the agriculture sector as India’s economic backbone and, to run this sector farmers need capital which can be obtained in the form of crop loans.

What are crop loans?

Crop loans are a special type of loan, which are provided by various institutions, from Nationalized banks to small scale Gramin banks. These loans are provided to Indian farmers as per their landholding. In technical terms, we can define farm/crop loans as “short term credit for financing crop production with a 0% interest rate”.

It works on one-time payment and one-time repayment policy which means you get the full amount in your bank account and you have to repay the full amount all at once. The loan amount to be sanctioned may vary from farmer to farmer as it is based on several factors such as Landholding, irrigation, type of land, etc. Once sanctioned, it is totally up to the farmer how he/she wants to use it i.e. for seeds, fertilizers, pesticides, etc.

A farmer’s perspective

Vasanta Akhare, a small scale farmer from Savner tehsil, Nagpur district, Maharashtra took us through the whole process of crop loans step by step and explained to us all the challenges faced during this process.

The initial stage is the Documentation stage in which the full focus is on gathering the up-to-date documents of the farm and the farmer. Documents like Aadhar card, land acquisition certificate, Gaon Namuna 7-12 with updated irrigation method if present, farm map, etc are to be collected from the authorized personnel and have to ensure that it is up-to-date.

The second stage is the Banking stage, in this stage, the first thing is to acquire the No-Due certificate. A No-Due certificate is essential to show that the farmer has no previously pending loans. After this the actual loan process starts, filling forms, attaching documents, etc. Later the bank professionals review the loan application and the maximum amount is decided which can be given as a loan to the farmer. Vasanta told us that with a landholding of 5 Acre he can get up to INR 2 lakhs of loan from the bank.

The final stage is the Disbursement and Repayment stage, in this phase the sanctioned amount is transferred to the farmer’s account and which can be used by either withdrawing the cash or with the help of Kisan Credit Card.

The loan amount must be repaid to the bank before 31st March next year or the farmer may not get a No-Due certificate for the following year.


Due to the Covid19 pandemic, many small banks are denying loans to the farmers causing a situation of distress among them. Crop loans are so essential to small and medium-scale farmers that if a farmer is not able to get a crop loan, they would have to sacrifice that entire year. Crop loan is also the major reason for farmer suicide in India.

The second issue is the Loan scams in which the farmers who do not need the credit also opt for it and also register for the Loan waiver scheme causing huge damage to the Indian monetary reserve.

Way Forward

Despite its Positives and negatives, Crop loans are one of the most important and necessary parts of Indian agriculture. We also cannot deny the fact that many reforms are needed in this sector such as:

A better system for agricultural loan waivers.

More personalized loans for farmers according to the crop.

Increase in the number of institutions providing farm loans.

Hence, if all the reforms take place we will be a step closer to doubling the farmer’s income in the near future. In the current situation, the system we have is satisfactory as it is doing a great job.

- Aman Rajurkar

B.E., Information Technology,