A study on the sway of Agricultural financing problems faced by Agricultural

Entrepreneurs in Lucknow district.

Mr. Divesh Dutt (Research Scholar), diveshd@iul.ac.in, 9161166266
Dr. Moiz Akhtar (Associate Professor) makhtar@iul.ac.in, 7080653669
Dr. Farhina Sardar Khan (Associate Professor), farhina@iul.ac.in, 8299153334
ABSTRACT

Agribusiness is characterized by recurring uncertainties that present farmers with various conditions

that affect their investment needs. This article tries to understand the financial problems of

agricultural entrepreneurs and examines the relationship between their agricultural finance

knowledge and financial problems. This study was carried out in Lucknow district of Uttar Pradesh,

India. Approximately 45 farmers were reached at various sampling stages. The survey revealed that

the main cause of farmers' financial problems is poor storage and poor loan application procedures,

with 64% of farmers having agricultural understanding as private lenders use these funds to make a

difference. Cooperation between government agencies and farmers on private loans has led to more

debt. The analysis also shows that political interference can lead to NPA (non-performing loans)

resulting from farmers' failure to repay their loans. When the effect of the agricultural financial

information of the farmers on their financial problems is examined, it has been revealed that one of

the main problems is the lack of funds and the inadequacy of external resources. Therefore,

increasing the financial knowledge of farmers about agriculture can greatly reduce their financing

problems.

Keywords: agricultural business; agricultural finance information; financial problems, KCC

INTRODUCTION

Access to finance is critical to agricultural development. The transition from agricultural production

to commercial agriculture requires capital. However, in developing countries where agriculture is

the livelihood of 86% of the rural population (International Finance Corporation [IFC], 2021),

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monetary financing for the agricultural industry is rare, even for large traders. Financial institutions

refuse to accept risks such as flooding, flooding, pests, and diseases occurring in agriculture or

long-term transaction costs. Thus, despite the government's current efforts to encourage investment

in agriculture, there is a lack of understanding of the financial risks of agriculture and the resources

that lead to jobs of much-needed capital to support production, production, and trade. This policy

brief examines the financial needs of agriculture in developing countries and the means available to

meet them. We examine the challenges of investing in agricultural finance, the role of different

actors, and governments' options to strengthen fiscal laws and policies to support agricultural

development.

CHALLENGES IN AGRICULTURE FINANCE

Investments in agriculture, as in other sectors, will need money from third parties, especially local

farmers, as well as foreign farming countries, producers, warehouses, or fertilizer companies to do

their job. However, in the current international financial system, many factors prevent the

development of sustainable financial services in rural areas of most countries.

First, renovation costs are higher in rural areas than in cities, due to more refugees and weak

infrastructure.

Secondly and more importantly, there are risks in agriculture that prevent financial institutions from

lending. These include production risks associated with natural disasters (such as flooding,

flooding, and pests), farmers' inability to provide guaranteed crops (because farmers do not have

land titles to provide credit collateral or land prices are too low). and price volatility.

Third, the financial markets of some developing countries may not be mature enough. The

availability and innovation of certain financial instruments and services is often poor. Also, when

financial services are available, they may not be suitable for all types of agriculture with different

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needs in terms of payment time, cost, and risk. For example, in seasonal agriculture, certain stages

of the production process require capital. At the same time, the supply of financial products is only

available to large farms with proven data and therefore cannot meet the specific needs of users'

goods.

Finally, the lack of agricultural data and statistics in developing countries makes it difficult for

financial service providers to assess their creditworthiness. This situation changes the necessary

conditions to obtain financial products and destroys the investment results obtained.

Geographic Scenario of Lucknow Region: Agricultural Sector in Development Dominant Lucknow

Rural Economy has a total of 215280 hectares of arable land, 138148 hectares of net arable land,

net irrigated area 124,000 people, small farmers 92.9% of the total population. small farmers have

an average of 0.8 hectares of land.

The Variables on basis of which the research has been conducted are as follows:-

a. Kissa Credit Card (KCC)

b. Banking Services related to agriculture.

c. Agriculture Sources of Finance.

d. Agriculture Productivity.

LITERATURE REVIEW

(Sharma, 2012). Therefore, agriculture plays an imperative role in the socio-economic growth of the

state by creating livelihood for a major portion of the population.

(Yadav, 2013). These days, practicing agriculture is not only limited to a means of survival but has

become a source of livelihood and taking the direction of entrepreneurial activity. Such potency

leads to the creation of agricultural entrepreneurs which is defined by Chander (2016) as creative

farmers who are innovating and applying suitable technologies and practices developed by them or

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integrating into their farms the technologies developed elsewhere, But the major aspect is that such

activities demand a significant amount of capital that needs to be invested. Besides their saving,

they often have to rely on the outside source for acquiring funds.

Shanmugavadivel (2015) stated that credit facility enables the farmer to attain the required capital

for increasing agricultural production and it can boost other factors of production by making the

latent or underused capacities functional. Thus, agricultural financing performs a crucial role in the

advancement of the agricultural sector.

Nath et al. (2016) found that lack of capital and unavailability of timely credit facilities act as major

constraints for future improvement of agricultural activities.

(Ajayi et al. 2019). Daily agricultural life depends on the sustainability of financial power, which is

influenced by the information chain of the financial providers.

(Ulusoy, 2020). Several policy measures have been introduced by the government to boost the

accessibility of farmers towards institutional sources of credit.

(Subramaniam and Shivananjappa, 2021). The umbrella coverage of agricultural financing services

from banks allows the agricultural entrepreneurs to carry out their farming process in a smooth way.

There are various schemes in India through which the agricultural loan is provided at a subsidized

rate. Besides that, with the introduction of the Kisan Credit Card (KCC), agricultural loans are

provided for consumption purposes, post- harvesting expenses, marketing expenses, the loan with

crop insurance and the agricultural entrepreneurs also get the option for social security schemes and

loans on warehouse receipt. It also gives the provision for the loan without collateral security.

Availing such facilities requires awareness among the agricultural entrepreneurs. However,

inadequate awareness of formal agricultural financial services would drive the agricultural

entrepreneurs to the doorstep of the unorganized sector.

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(Shanmugavadivel, 2022). Widhiyanto et al. (2022) were concerned that better awareness creates

more access to financial institution’s products and services.

METHODOLOGY

Objective of the Study: -

1- To identify the financial problems of agricultural entrepreneurs.

2- To determine the level of agricultural financing awareness of agricultural entrepreneurs.

3- To determine the effect of awareness on agricultural financing on the financial problem of

agricultural entrepreneurs.

4- To determine the causes and effects of low agriculture productivity and its effect on finance.

The research design of the paper is descriptive followed by a cross-sectional study. In this study,

only those agricultural entrepreneurs were taken into consideration who produced for commercial

purpose, come within the purview of the agriculture and horticulture sector and engaged in the

business for at least 2 years. Since there was no record or list of the total population of agricultural

entrepreneurs in the study area, the population was considered as infinite this paper and from each

district, the samples of agricultural entrepreneurs were selected with the help of agricultural

extension officials assigned by the respective district agriculture office. Accordingly, 96 samples

were selected considering the minimum number of samples that needed to be present as per the

number of variables in the study, use of survey scale and to run the statistical test such as t-test,

ANOVA (Delice, 2010; Louanglath, 2017; Cohen et al., 2005). Multi-stage sampling was used.

The State of Uttar Pradesh falls under three agro-climatic zones viz. Agro Climatic Zone–IV:

Middle Gangetic Plains region Agro Climatic Zone–V: Upper Gangetic Plains region and Agro

Climatic Zone–VIII: Central Plateau and Hills region. The Agro-climatic zone- V is among the

larger and very thickly populated agro-climatic zones. It covers 32 districts of Uttar Pradesh. A

large part of the geographical area is cultivated and is well irrigated. This is the most developed

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region of the State of Uttar Pradesh. Over 70% of the area is sown and nearly 65% of this is

irrigated. The zone is characterized by semi-arid and sub-humid conditions. The mean Annual

rainfall varies between 700 and 1,000 mm. There are three sub-zones under this agro-climatic zone.

Central Plains - Allahabad, Fatehpur, Pratapgarh, Sultanpur, Rae- Bareili, Unnao, Lucknow, Bara

Banki, Sitapur, Hardoi, Kheri and Pilibhit districts fall under this sub-zone. The region receives on

an average 979 mm of rainfall; the climate ranges from dry sub-humid to semi-arid and the soil is

alluvium calcareous sandy loam. About 62% of the land is cultivated of which 56% is irrigated.

Based on prior research papers and pilot survey, seven items were considered to measure the causes

of financial problems of agricultural entrepreneurs. The items include inadequate savings, less source

of borrowing, high risk in borrowing, lack of awareness on applying for bank loan, cumbersome

process in applying for bank loan, high rate of interest and lack of collateral security. To quantify

the items of financial problems,7- point interval rating scale was used where 1 denoted least agree

and 7 referred to strongly agree to the causes of the financial problems. Subsequently, the mean

score was calculated based on ratings provided by the respondents on different financial problems.

The individual mean score of the items was calculated to compare the items causing the financial

problem and the overall mean score of the financial problem was ascertained to correlate it with the

awareness of agricultural entrepreneurs on agricultural financing.

The items that measured the awareness level of the agricultural entrepreneurs on agricultural

financing were grouped into five factors that were: awareness of basic banking services,

periodicity of loan, collateral security on loan, various agricultural financing schemes and facilities

on KCC (Kisan Credit Card). Each factor was represented with several items and the questions

were asked in the dichotomous form and scores were measured accordingly by segregating the

responses into ‘1’ for ‘aware’ and ‘0’ for ‘not aware’. The overall scores on the items were then

categorized into three different levels i.e. high, medium and low. If the score of the respondents

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 fell below the (Mean Standard Deviation) the awareness level was taken low. The awareness level

was considered medium when the score declined between (Mean ± Standard Deviation). If the

score was above (Mean ± Standard Deviation) the awareness was considered high

(Shanmugavadivel, 2021).

Relationship between agricultural financing awareness and financial problems of agricultural

entrepreneurs was analyzed using One-Way ANOVA. The independent variable was the level of

awareness on agricultural financing and financial problem of the small- scale commercial farmers

was the dependent variable. Using this variable, the null hypothesis was constructed as:

There is no significant difference in the mean score of financial problems across the levels of awareness on

agricultural financing.

FINDINGS AND DISCUSSION

Financial problems of Agricultural Entrepreneurs

The reasons leading to the financial problem of the agricultural entrepreneurs are depicted.

6.5
5.5
4.5
3.5
2.5
MEAN SOURCE

1.5
0.5
Inade- Cumber- High risk Lack of High Rate Less Lack of
quate some in Bor- Aware- of Inter- Source of Collateral
Saving Process in rowing ness on est Borrow- Security
applying applying ing
for bank for bank
loan loan

Se- 6 5.7 4.6 4.6 4.5 3.3 3

ries1

Figure 1: Causes of Financial Problems of Agricultural Entrepreneurs

Source: Journal of Extension Education Vol. 32 No. 4, 2020 Author Name: N.Purnima & B.Anjan

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 The x-axis represents the variables of financial problems and the mean score of the variables

leading to the financial problem is presented in the y-axis. A high mean score indicates more

financial problems for agricultural entrepreneurs. Here, it can be seen that inadequate savings

affected mostly to financial/capital requirement of agricultural entrepreneurs which was quite

found in prior research papers on the financial-related problems faced by the entrepreneurs

(Swathy & Benazir, 2014; Jayadatta, 2017). However, it can be interpreted from Figure. 1 that

the cumbersome process in applying for a bank loan affected the financial requirement with an

average rating of 5.7 out of 7. This result also supports the findings of the study conducted by

Gichuki et al., in 2021 where 75.7% of entrepreneurs rarely apply for loans from banking

institutions due to strict terms. There was an almost equal rating on the high risk in borrowing,

lack of awareness on applying for a bank loan and high rate of interest.

The research design of the article is defined as a cross-sectional study. The study is conducted on

secondary data. The study was carried out in Lucknow. In this study, agricultural businessmen who

produce only for the market, who are in the agriculture and horticulture sector and who have been

operating for at least 2 years have been determined. Since there is no information or list regarding

the entire farmer population in the study area, the population is assumed to be infinite in this study

and a sample of the farmers was selected with the help of agricultural officers sent from each

province. Affiliated District Agriculture Department. Based on previous research and research,

seven items were considered to quantify the causes of farmers' financial problems. Insufficient

savings, some loans, high-risk loans, poor knowledge on applying for bank loans, application

process for bank loans, high interest rates and lack of loan guarantee. An average score is then

calculated based on participants' assessments of different financial questions. Calculate the average

individual score for each item, compare the items that cause financial problems, and determine the

overall average score of financial problems associated with people's agricultural knowledge of

agricultural finance.

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Determine The Level of Agricultural Financing Awareness of Agricultural Entrepreneurs

75
65
55
45
35
Mean SCORE

25
15
5
Basic Banking Awareness of Security on Awarness on Awareness of
Awareness Agriculture Bank Loan Periodicty of KCC Facilities
Fianncing Bank Loan
Scheme

Series1 72.75 54.17 39.67 30 19.75

Figure. 2: Dimensions of Agricultural Financing Awareness

Source: Journal of Agriculture & Extension Education Research Vol. 12 No. 4, 2021 Author Name:

Ghasemi and Zahediasl

Items measuring the agricultural finance knowledge level of farmers are divided into five

categories: Banking services information, credit cycle, loan credit, various agricultural finance and

KCC (Kisan credit card) opportunities. According to Figure: 2 Everything is represented by several

items, and questions are asked in a binary form, and the score is measured by dividing the answer

by "1" for "I know" and "0" for "I don't know". Then the total score of the product is divided into

three different levels as high, medium, and low. If the respondent's score is low (meaning the

standard deviation), the level of knowledge is also low. If the score is between (mean ± standard

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deviation), the level of consciousness is considered average. Information is considered high as the

highest score (mean ± standard deviation). Analysis of variance was used to analyze the relationship

between farmers' agricultural finance knowledge and financial problems. The difference between

independence is the level of knowledge of agricultural finance, and the financial problems of small

farmers are different. Using this difference, the null hypothesis was formulated as follows. There is

no significant difference in the mean scores of financial problems at different levels of agricultural

finance knowledge.

Effect of Agricultural Financing Awareness on Financial Problems of Agricultural

Entrepreneurs.

In the process of examining the effect of the level of agricultural financing awareness on the

financial problems of agricultural entrepreneurs, a one-way ANOVA was conducted. ANOVA is

based on the assumption of the normal distribution thus the test of normality was conducted using

the Shapiro Wilk test. As mentioned by Ghasemi and Zahediasl (2012) on the excellence of the

Shapiro Wilk test over Kolmogorov-Smirnov test and a better choice fortesting the normality of

data. “If the p-value of Shapiro Wilk test is greater than the alpha value (0.05), the data is

normal” (Lund Research Ltd., 2018, p. 1). After conducting the Shapiro Wilk test, the result

showed the p-value 0.113 (greater than 0.05), consequently, the data were assumed to be normally

distributed. The data also met the criteria for homogeneity of variance which was tested with the

help of Levene’s test. The result of Levene’s test showed the p-value of 0.164 which was more

than 0.05 and indicated the equality of variance among the groups. Table 1 displays the summary

of ANOVA where it showed that p-value (Sig.) is 0.000 (<0.05), therefore the null hypothesis

‘there is no significant difference in the mean score of financial problems across the levels of

awareness on agricultural financing’ was rejected. This inferred that there was a statistically

significant difference in the mean score on financial problems of agricultural entrepreneurs having

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high, medium and low level of awareness on agricultural financing. The difference in the average

score on the financial problems of agricultural entrepreneurs across the three levels of awareness

on agricultural financing. The data from table 2 revealed that the mean score on the financial

problem at the low level of awareness was 37.54, at medium level of awareness the mean score

reduced to 32.03 and for the respondents with high level of awareness on agricultural financing,

the respective mean score on finance problem was further reduced to 26.55. This indicated that the

financial problem of agricultural entrepreneurs decreased with the increase in the level of

awareness on agricultural financing. Similar observation was also made by Thakur and Barman

(2013).

Therefore, it can be concluded that the financial problem of agricultural entrepreneurs is

dependent on their level of awareness of agricultural financing and both the variables share a

substantial negative relationship with each other. is suggested that along with the involvement of

bank officials there should be active engagement of agricultural extension officials to increase

awareness of agricultural financing at the grassroots level.

CAUSES AND EFFECTS OF LOW AGRICULTURE PRODUCTIVITY AND ITS

EFFECT ON FINANCE

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 Figure:3- Causes and effects of low agriculture productivity and its effect on finance.

Agricultural knowledge level is divided according to the total score of each dimension of

agricultural financial knowledge. According to figure:3 the cause and effects of the low agriculture

income is having an adverse effect on the understanding of what farmers know about, the chart

shows a data comparison based on the average score for each factor in knowledge farm finance. 2.

The average score of each factor of agricultural finance information is calculated by dividing the

total score of each factor by the number of items in each factor.

Comparison of average scores on various factors related to agricultural finance knowledge shows

that banking services knowledge has the highest value (72.75). Banking services include familiarity

with deposit types, interest calculations, ATM cards and online banking services. On the other hand,

the average score of knowledge of credit security is quite low (39.67). The security of the loan is

shown in terms of secured loans, unsecured loans, and maximum unsecured loans. After analyzing

the reasons for the average credit score, it turned out that only 22 of the 96 respondents knew about

unsecured loans and only one participant knew the maximum loan amount. Among them, KCC

(Kisan credit card) site has the lowest average score (19.75). Information on the KCC site was

evaluated, and in addition to information on the availability of KCC-subsidized crop loans; Of the

96 respondents, only 29 were aware of the availability of agricultural equipment, while 33 were

aware of the potential use. KCC provides loans to joint ventures. Surprisingly, none of the

respondents are aware of the validity of Kisan credit card (KCC), on-demand credit availability,

marketing of agricultural products, return fees and credit card (KCC) using Kisan credit card.

Mangalam reported similar findings in 2019.

CONCLUSION & SUGGESTION

The empirical analysis of this study shows that farmers face many problems that hinder their

investment in agricultural business. There are seven problems faced by the agriculture entrepreneur

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in the Lucknow region related to agriculture finance. The problems are defined as Inadequate

Saving, Cumbersome Process in applying for bank loan, High risk in Borrowing, Lack of

Awareness on applying for bank loan, High Rate of Interest, Less Source of Borrowing, Lack of

Collateral Security these are the keys to financial problems.

Research shows that most agricultural entrepreneurs have an average level of knowledge of

agricultural finance, but the main factors affecting the knowledge are the availability of unsecured

loans and maximum unsecured loans. Security, credit, and additional opportunities offered by Kisan

credit card.

When the financial problems of commercial farmers were examined, it was determined that they

had a negative relationship with agricultural finance knowledge. Therefore, the conclusion of this

study is that more efforts should be made to increase the level of knowledge on agricultural finance

to meet the financing needs of farmers. Although there are many important strategies to promote

agricultural finance knowledge (also in the form of financial literacy), the fundamentally positive

impact has not been seen. For this reason, it is recommended that agricultural extension technology

employees be included in the process, as well as the participation of bank employees, to raise

awareness at the grassroots level of agricultural finance.

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