Challenges in accessing agricultural credit among tribal and non-tribal communities in Chamba, Himachal Pradesh

Introduction

In present developing India, rural areas depended on agriculture; still continue to hold significant importance, not only as sources of livelihood but also as key contributors to employment generation. Agriculture is the largest source of livelihood for the rural population, which not only provides food and economic opportunities for rural population but also is devotion for them. It plays a critical role in the improvement in the life of people and overall development of the country as well (Kumar, V. 2022). Agriculture is the backbone of rural India, plays a vital role in ensuring the sustenance of farmers' lives. Currently, Indian agriculture is undergoing a transitional phase, where modern inputs, technologies, and resources have become indispensable (Kumar, A. Shinoj, P. & Joshi, P.K. 2010: Khan, N. et al., 2021). In this modernization process, alongside advanced techniques and inputs, finance emerges as a critical input (Yang & Zhu, 2013). Agricultural credit holds a unique yet highly significant place in this context. As an important tool to empower the farmers, credit is central to this transformation to take up necessary inputs, modern farming techniques and technologies (Scobie, G.M. & Franklin, D.L., 1977).

Most of the farmers in India belong to the small and marginal categories, and their share in the agricultural landscape has been steadily increasing, as highlighted by the 2015 Agricultural Census. According to 2015-16 Agriculture Census there was a 1.53% decrease in the total operated area compared to 2010-11 and 146.45 million operational holdings are there in India, with an aggregate area of 157.81 million hectares. However, there was an increase in the number of operational holdings and the average size of operational holdings decreased from 1.15 hectares in 2010-11 to 1.08 hectares in 2015-16, More than half of these operational holdings (126.06 million) are marginal and small, covering a total area of 74.07 million hectares, accounting for 46.94 percent of the total Holdings. The prevalence of small landholdings contributes to the poverty and low income levels among many Indian farmers, limiting their ability to invest in agricultural improvements (Sidhu & Gill, 2006).

In the context of agricultural growth, land and labor are no longer the primary drivers. Instead, capital investment and scientific knowledge have become crucial sources of agricultural advancement, with their contributions rapidly increasing (Rao, C.H. 1980). This shift highlights the growing importance of finance for modern inputs and technological advancements with adequate credit in driving agricultural productivity and transformation (Scobie, G.M. & Franklin, D.L., 1977). For regions like Chamba, Himachal Pradesh, where diverse geographical and socioeconomic conditions prevail, access to agricultural credit is essential for sustaining and modernizing farming practices. Credit helps farmers to buy necessary inputs and adopt modern technologies to improve their farm production (Etonihu, Rahman, and Usman, 2013), it is an important means of supporting the poor farmers by stabilizing their income and reducing their vulnerability to financial hardships (Elias, Ahmad, and Patil, 2015). However, to access credit by farmers are fraught with challenges, particularly for marginalized communities such as tribal and small-scale farmers. However, several challenges hinder the effective implementation of credit systems. Research shows that farmers face many problems, such as unfair treatment, issues of collaterals, awareness or financial struggles, and other issues that affect their ability to get credit. These challenges make it harder for them to access the adequate agricultural credit properly, highlighting the need to understand these problems better.

In developing economies, farmers often face credit constraints and low income due to their inability to provide collateral to secure bank loans, this limits their access to formal financial support for farming purpose (Conning and Udry, 2007). Farmers in India rely for institutional and non institutional sources to avail credit for their farming and non farming purpose also (Tak & Tak, 2010). Informal sources include family, friends, relatives, and moneylenders, while formal sources operate through a well-organized three-tier structure. The Reserve Bank of India (RBI) and NABARD serve as the apex institutions in this system, while commercial banks, Regional Rural Banks (RRBs), and cooperative banks provide direct credit to farmers. Additionally, many banks collaborate with village-level societies and Self-Help Groups (SHGs) to deliver credit at the grassroots level (Kumar, Singh & Kumar, 2007). Ayegba, & Ikani (2013) mentioned that the agricultural development can be accelerated by providing farmers with adequate credit at the right time, in the right place, and through the right institutions. Over the years, there has been a significant shift in the share of formal and informal credit sources in India. In 1951, institutional credit accounted for only 7.3% of borrowings by cultivator households, with a large 92.7% coming from non-institutional sources such as moneylenders and informal lenders. By 2016, this trend had reversed, with institutional sources making up 72% of borrowings, leaving only 28% from non-institutional sources. This change highlights the increasing role of formal financial institutions in providing credit to farmers, supported by policies and initiatives to reduce dependence on informal credit. Institutional agricultural credit has played a pivotal role in promoting modern farming techniques and private investments in agriculture by ensuring farmers have timely access to adequate credit at low-interest rates (Kumar & Thakur, 2023). However, despite the growing share of formal credit, farmers still face several challenges in accessing it. Issues such as the limited availability of financial institutions, their distance from farmers' homes, high-interest rates (Shobha & Siji, 2018), lack of awareness about various loan schemes, complex loan processes, and the need for collateral continue to create barriers (Sahni, M., 2020; Dhakshana & Rajandran, 2018). These challenges underscore the need for focused efforts to make formal credit more accessible and farmer-friendly.

This study seeks to address these critical gaps by investigating the underlying factors that hinder access to agricultural credit for tribal and non-tribal farmers in Chamba. Access to credit is influenced by several factors which also lead to several challenges. It aims to provide a comprehensive understanding of the issue, highlighting the systemic, institutional, and socio-cultural challenges that contribute to the inequities in credit access. The findings will offer insights for policymakers to design targeted interventions that promote financial inclusion and support sustainable agricultural development in the region.

Review of literature

Subramanian, & Sunil (2017), observe that ensuring timely and adequate access to agricultural credit is essential for the growth of the farming sector. Efforts must focus on eliminating illegal costs associated with obtaining credit, which often burden farmers and hinder financial inclusion. Additionally, measures should be implemented to provide the required credit promptly and in sufficient amounts to meet the diverse needs of farmers. These steps are critical to improving the efficiency and effectiveness of agricultural finance systems.

Alam Khan, P., & Nazeer, D.I. (2019) identify and examine the challenges faced by farmers in obtaining and repaying agricultural loans. Farmers encounter issues such as crop failure, fluctuating monsoons, and insufficient awareness of loan procedures, collateral requirements, low yields, and volatile market rates. Major barriers include poverty, illiteracy, lack of mechanization, inadequate capital formation, poor marketing facilities, and limited knowledge of high-demand crops. Borrowers often face additional costs and procedural difficulties in securing credit, which can have long-term negative effects. Eliminating unnecessary costs and simplifying credit access are essential for mitigating these challenges.

Odinwa, et al. (2022), examine the challenges faced by farmers in accessing agricultural credit for enhanced food production, particularly in Delta State. It highlighted that farmers are more familiar with informal credit sources compared to formal ones, which remain largely inaccessible. Key challenges identified include a lack of trust by lending institutions, inadequate leadership vision in agriculture, and insufficient awareness of available credit facilities. Other barriers include high interest rates, lack of required savings with banks, diversion of loans for non-agricultural purposes, and the absence of insurance practices among farmers. Additional challenges include gender disparities, farmers' inability to repay revolving loans, illiteracy, the cost and demand for feasibility reports, and farmers' aversion to risk. These issues collectively hinder effective access to agricultural credit.

Soundarya & Parimalarani (2022), conducted a study in Tamil Nadu focusing on understanding the challenges faced by farmers in accessing agricultural credit from financial institutions. The findings revealed that the primary issues included delays in loan disbursement, high costs associated with the credit application process, inadequacy of loan amounts, and a lack of knowledge about agricultural credit. Farmers also struggled with completing loan applications and were unaware of various loan schemes offered by banks. Additionally, the scale of finance was found to be insufficient. The study emphasized that the inadequacy of loan amounts was the most significant challenge, highlighting the growing credit needs of farmers in line with the rising costs of cultivation.

Lakhan, G.R. et al. (2020) identified challenges in agricultural finance provided by commercial banks. Bankers faced issues like indiscriminate borrower selection, political pressures, and delays due to incomplete documents such as no-dues and title deeds. Borrowers encountered problems including lack of awareness about loan programs, rigid procedures, delays in loan sanctioning, and disbursal processes.

Objective of the study

1. To examine the challenges faced by tribal and non-tribal communities in accessing agricultural credit in Chamba.

The primary objective of this study is to examine the challenges faced by tribal and non-tribal communities in accessing agricultural credit in Chamba. It aims to identify and analyze the socio-economic, institutional, and procedural barriers that hinder credit accessibility for these communities. The study also seeks to highlight disparities between tribal and non-tribal communities of study area in terms of their perception about the different problems faced by them in accessing the agriculture credit in term of overall cost of credit in other variables. By understanding these challenges, the research intends to provide actionable insights to improve the financial inclusion of farmers in the region.

Research methodology

Study comprised primary data to obtain the required objective of the study. Primary data is collected using a semi structured questionnaire-cum-schedule, designed to capture comprehensive information about farmers' experiences with agricultural credit access. Three stages sampling with stratification was adopted. In the first stage all the seven blocks of Chamba district was selected, in second stage 3 villages with highest rural population from each development block was selected, and in 3rd and final stage 20 rural households accessing credit was selected purposively in the study. Total 420 respondent households were selected from the population of 94,596 rural households calculated by Finite Population Correction Factor formula to determine sample size.

The collected data analyzed employing statistical tools to identify patterns and relationships between different variables.

Comparisons are made between tribal and non-tribal communities to understand disparities and unique challenges.

Scope of the study

The research aims to provide actionable insights into improving credit access for both tribal and non-tribal farmers, addressing systemic and regional challenges while suggesting policy interventions for financial inclusivity.

Study area

The study is focused on Chamba, a district located in the state of Himachal Pradesh, India. Chamba is known for its diverse geography, ranging from plains to mountainous regions, and is home to both tribal and non-tribal communities engaged in agriculture which is a unique combination of the district. The district's agricultural landscape is characterized by traditional farming practices comprising small and marginal farmers in majority, and the farming community relies on agricultural credit to sustain and improve their livelihoods. Despite the availability of various credit sources, there are significant challenges in accessing financial resources. This study explored these challenges in detail, focusing on both tribal and non-tribal farmers in Chamba.

Analysis and interpretation

(i) Overall cost of the credit

The overall cost of credit encompasses all expenses incurred by farmers while obtaining and utilizing agricultural loans. These costs include interest rates, Loan Charges beyond Interest, Negotiation Cost and Cost of Time and Travel, such as travel expenses to banks and time lost during loan application and approval processes, for tribal and non-tribal farmers in Chamba, additional factors such as informal charges or bribes, the cost of preparing required documentation, and collateral-related expenses significantly increase the financial burden which are also included in the four main components of these area. These hidden costs disproportionately affect small and marginal farmers, making credit access both expensive and challenging. Addressing these cost components is essential to ensure affordable and inclusive credit for all farmers in the region.

The analysis highlights the significant financial burdens faced by farmers in accessing agricultural loans. Among the various components, the cost of time and travel stands out as the most substantial expense, with a mean value of 3.78 and the highest variation (standard deviation of 0.782), highlighting the logistical and geographic challenges and even opportunity costs borne by farmers, particularly in remote areas, significantly contribute to the overall cost of credit. The Loan Charges beyond Interest and Negotiation Costs were found to have similar mean values of 2.33 and 2.32, respectively, indicating a consistent additional financial strain due to formal charges and informal negotiation-related expenses. Meanwhile, the amount of interest paid shows a lower mean of 1.73 but with moderate variability (standard deviation of 0.707) reflecting the benefits of standardized interest rates or institutional frameworks offering concessional credit. The overall cost of credit, with a mean of 2.60 and a low standard deviation of 0.434, reflects the uniformity of the cumulative burden across respondents.

Table 1: Overall cost of agriculture credit

Overall cost of credit	Sum	Mean	Std. Deviation
Amount of Interest paid	725	1.73	.707
Loan Charges beyond Interest	982.67	2.33	.569
Negotiation Cost	977.50	2.32	.598
Cost of Time and Travel	1589.67	3.78	.782
Overall Cost	1092.86	2.60	.434

Source: Field Survey 2023-24.

Community wise analysis and cost of agriculture credit between tribal and non-tribal farmers households

The independent samples t-test was conducted to analyze the community-wide differences in the cost of agriculture, focusing on various cost components. Different component of cost included in the study was interest paid. loan charges beyond interest such as cost of application fees, other forced purchase lender services, service fees charged, bribes in this, rate of minimum deposit, closing costs, amount paid to obtain back collateral, Negotiation costs associated included, money paid to extension agents, amount paid to local officials or leaders, technicians expenses, gifts and bribes to local agents, Time and Travel cost including costs of frequent visits to the bank to get a loan, loss of work time, and the cost to collect documents required for a loan.

Table 2: Independent samples t-Test results for community-wise analysis of agricultural costs

Cost Component	Levene's Test (Sig.)	t-value	df	Sig. (2-tailed)	Mean Difference
Cost of Interest Paid	0.281	-1.725	418	0.085	-0.122
Application Fees	0.001	-4.483	418	0.000	-0.440
Forced Purchase of Other Lender Services	0.568	-3.033	418	0.003	-0.268
Service Fees Charged	0.743	-3.384	418	0.001	-0.294
Paid Amount to Extension Agents	0.004	-2.136	418	0.033	-0.199
Paid Amount to Local Official or Leader	0.636	2.489	418	0.013	0.230

Source: Field Survey 2023-24.

(ii) Problems associated with agriculture credit

The challenges of agricultural finance are numerous and complex. Managing farm finance involves issues at both organizational and functional levels. Farmers obtain credit from non institutional and institutional agencies for various purposes, but many farmers faces difficulties during this process. In this study, we aimed to explore farmers' perceptions to identify the various problems they face while accessing agricultural credit in the study area, using a 5-point Likert scale.

Table 3: Overall problems associated with access to agriculture credit

Descriptive Statistics	Sum	Mean	Rank
The location of banks and credit agencies is far from my village, making them difficult to access.	1598	3.80	1
Visiting banks or credit agencies leads to a loss of my daily wages.	1563	3.72	2
I lack awareness about loan schemes, their processes, and the required procedures.	1546	3.68	3
The loan application process is too complicated and time-consuming for me.	1472	3.50	4
There are frequent delays in the sanctioning of my loan, causing inconvenience.	1395	3.32	5
Banks demand high-value security as collateral, which I find difficult to provide.	1284	3.06	6
The amount of loan sanctioned to me is often insufficient to meet my needs.	1224	2.91	7
The loan repayment period provided to me is too short for me to manage comfortably.	1221	2.91	8
I experience a lack of cooperation from bank staff during the loan process.	1103	2.63	9
Bank officials display favoritism, which affects my fair access to loans.	1041	2.48	10
The interest rates on loans are high, making repayment challenging for me.	629	1.50	11

Source: Field Survey 2023-24.

Community wise problems associated with access to agriculture credit

Community wise problems associated with Access to agriculture credit was identified with Mann-Whitney U test which examine whether there are significant differences in how non-tribal and tribal (scheduled tribal) communities perceive challenges related to accessing agricultural credit.

Table 4: Mean Ranks of Mann-Whitney U Test Results

Problem	Community	N	Mean Rank
Awareness	Non-Tribal	255	182.08
	Scheduled Tribal	165	254.42
Banks and Credit Agencies Location	Non-Tribal	255	198.59
	Scheduled Tribal	165	228.91
Insufficient Amount	Non-Tribal	255	197.66
	Scheduled Tribal	165	230.35
Loss of Wages	Non-Tribal	255	197.38
	Scheduled Tribal	165	230.78

Source: Field Survey 2023-24.

Table 5: Mann-Whitney U Test Statistics

Problem	Mann-Whitney U	Z	Sig. (2-tailed)
Awareness	13790.500	-6.333	0.000
Banks and Credit Agencies Location	18000.000	-2.716	0.007
Insufficient Amount	17762.500	-2.780	0.005
Loss of Wages	17691.000	-2.905	0.004

Source: Field Survey 2023-24.

The results indicate a statistically significant difference in the perception of awareness-related challenges between tribal and non-tribal farmers, with a p-value of 0.000. Tribal farmers reported a significantly higher mean rank (254.42) compared to non-tribal farmers (182.08), suggesting that lack of awareness about loan schemes and processes is more pronounced among tribal communities. This highlights the need for targeted financial literacy programs to address this gap.

Conclusion

In conclusion, this study sheds light on the multifaceted challenges faced by tribal and non-tribal farmers in accessing agricultural credit in Chamba, Himachal Pradesh. The analysis reveals significant disparities between the two communities, particularly in terms of awareness, accessibility, and the financial burden associated with credit. Tribal farmers face greater difficulties in understanding loan schemes (Mean Rank = 254.42), accessing nearby banks and credit agencies (Mean Rank = 228.91), and securing adequate loan amounts (Mean Rank = 230.35). These findings underscore the need for targeted interventions to improve financial literacy and bank infrastructure in tribal areas, ensuring that the specific needs of tribal farmers are addressed effectively.

Additionally, while interest rates were not a major concern for either community, the study highlighted the significant burden of non-interest costs such as application fees, service charges, and the time and travel expenses incurred by farmers, especially those in remote tribal areas. With a mean value of 3.78 for the cost of time and travel, it is evident that geographical isolation exacerbates the financial strain on farmers. The Mann-Whitney U Test revealed that these challenges are more pronounced for tribal communities, with statistically significant differences in the mean ranks for issues like awareness and the location of credit facilities, reinforcing the need for policy reforms that address these logistical barriers and reduce the associated costs.

Ultimately, the results of this study call for a comprehensive approach to improve agricultural credit access in Chamba, focusing on reducing geographic and economic barriers, enhancing awareness, and tailoring financial products to the needs of marginalized communities. By addressing the unique challenges faced by tribal farmers, such as the lack of awareness, remote locations of credit agencies, and inadequate loan amounts, policy reforms can help create a more inclusive and accessible credit system. This would not only improve the economic well-being of farmers but also contribute to the broader goal of financial inclusion in rural areas, ultimately bridging the gap between tribal and non-tribal communities in accessing agricultural credit.

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