In 1904, the Indian government passed the ‘Cooperative Credit Societies Act’. This act marked the beginning of cooperative credit in India. It enables people to voluntarily come together to meet their mutual financial needs as and when required.
Objectives of Cooperative Credit Societies
These societies were formed with the following broad objectives.
- To eliminate the role of moneylenders as a source of credit
- To provide easy and adequate credit to farmers
- To expand the flow of credit in rural areas
Levels of Cooperative Credit Societies
In India, these societies work at three levels.
- Primary agricultural credit societies (PACS): These societies work at the village level and deal directly with the rural borrowers.
- Central cooperative banks: These banks work at the district level. They advance short-term as well as medium-term loans to PACS.
- State cooperative banks: These banks work at the state level. They, too, advance loans to PACS.
Presently, cooperative credit societies account for 30% of the total rural credit. Cooperative credit societies have certain drawbacks that prevent them from becoming a popular source of credit in rural areas. Some of these limitations are discussed below.
Limitations of Cooperative Credit Societies
- Insufficient financial resources: These societies do not have sufficient financial resources to cater to the demands of the rural regions.
- Huge overdue amount: Many of these societies have a huge amount of overdue, which has made them virtually defunct.
- Delay in advancing credit: Most of these societies are unable to advance timely credit.
- Inclination towards large farmers: These societies have mostly benefitted big farmers. These societies have failed to solve the fund problems of small and marginal farmers.
- Uneven growth: These societies have come up unevenly in different parts of the country. Only certain regions seem to have benefitted from this initiative.
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