India may be No.1 milk producer in world, but dairy farmers still outside formal credit system

The study ‘Formal versus Informal: Efficiency, inclusiveness, and financing of Dairy value chains in India’ has stated that there is a considerable scope for commercial banks and other financial institutions to improve their outreach.

Despite India being the world’s largest milk producer for the past many years, a majority of small dairy farmers in the country continue to remain outside the formal credit system of commercial banks and financial institutions, a joint study the National Institute of Agricultural Economics and Policy Research (NIAP) and the International Food Policy Research Institute (IFPRI) has stated.

The study ‘Formal versus Informal: Efficiency, inclusiveness, and financing of Dairy value chains in India’ has stated that there is a considerable scope for commercial banks and other financial institutions to improve their outreach.

“Though financial requirements of small dairy farmers are not great, commercial banks and other financial institutions often avoid financing them because of the high cost of lending relative to the size of the loan, and higher lending risks. Smallholder farmers have limited assets, often less documented, which makes it difficult for them to use these as collateral against loans,” the study noted.

It also acknowledged that in India, dairy has remained under-financed by the commercial banks and other financial institutions despite its significant potential to generate higher returns to land, labour, and capital, and on a continuous basis.

It said the share of livestock in total agricultural credit has hardly ever exceeded 5% of the total annual loan disbursed while the sector has share of around 20% in gross value of agricultural GDP.

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