Security for Crop Loan :
An essential feature of the crop loan system is that a cultivator’s eligibility for loan and its size are determined not with reference to the value of the land or any other tangible security that he is in position to offer but on the basis of the size of the land holding he cultivates and the crops he grows. The repayment of loans is expected out of the sale proceeds of the crops raised. A distinction has to be drawn between:
i. loan to a cultivator and loan for agricultural production;
ii. Loans given without reference to outlays on the crops and repaying capacity generated thereby will fall in the former category; whereas, crop loans fall in the latter category, as they are essentially need based and productionoriented (and not security oriented).
While the security offered will not be the basis for a crop loan, it does not mean that the security aspect should be completely done away with. Security is necessary to provide against the possibility of a loan becoming unrealisable. Many Cooperative Societies Acts and Banks provide for a charge on the “standing crops as security” for advances made for agricultural purposes. If the crops grown are really to constitute the security for advances, it is necessary to ensure that the repayment of loan is made out of the sale proceeds of crops grown.
However, partly because of the ineffective linking of credit with marketing and partly because of inadequate and inefficient supervision, the credit agency has little or no control over the sale of crops. Further, it is also difficult to enforce the charge on crops in spite of the provision therefor in the Cooperative Societies Acts.
Mortgage of land would appear to be a sound security from the point of view of the lending agency. But insistence on such security is likely to create difficulties to the borrowers.
Firstly, the procedure and formalities which an execution of mortgage involves are generally time consuming and elaborate. Secondly, it may handicap a borrower in raising medium or long term loans for which mortgage of land is normally insisted upon. Thirdly, a large number of cultivators would be deprived of loans because of their inability to provide mortgage security e.g., tenants, oral lessees, etc.