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AG ECON 540 AGRICULTURAL FINANCE I                                                                            (2L+1P) III

Objective
  To inform students about the importance and scope of finance in Indian agriculture, credit structure, capital investment and optimum utilization of available financial resources.

Theory

UNIT I
  Definition and scope of  agricultural finance. Its relationship with farm management, land economics, principles of economics, psychology and sociology. Growing emphasis on agricultural finance in developing countries. Changing concept of agricultural finance with special reference to India. Introduction to public finance. Agricultural Finance as a part of public finance. Capital in agriculture: Classification of capital- working capital and fixed capital, divisible and indivisible capital, owned and borrowed capital. Sources of capital. Principles of capital investment: average rate of return, pay back, internal rate of return, net present value and capital budgeting.

UNIT II
  Meaning and concept of agricultural credit: Capital and credit, credit as a substitute for saving, credit and saving. Classification of farm business credit, production versus consumption credit. Desirable characteristics of a loan. Credit as a tool for economic development. Different methods of charging interest, cost of credit. Financial decisions-Investment, Financing, liquidity and solvency. Financial accounting system: Balance sheet analysis, its valuation difficulties, income statement, Cash Flow Statement, Ratio analysis and Assessing the performance of farm/firm. Three R’s of credit: 3 Cs of credit and their relation to 3Rs of credit. Return as a guide in use of credit; marginal analysis; budgeting. Incorporating risk in budgeting. Repayment capacity. Self liquidating loan; non-self liquidating loans. Strengthening repayment capacity. Terms of payment. Different types of risks; risk bearing ability. Increasing owner equity.; Stabilizing income; Diversification, insurance, flexibility and contracts. Internal cash/ asset rationing. Internal credit rationing; External credit rationing.

UNIT III
  Legal aspects of credit: Real estate mortgage; Title theory; Chattel mortgages: Livestock, crop, commodity, equipment, miscellaneous. Promissory note; sale contract; other credit instruments. Risk in financing agriculture. Risk management strategies and coping mechanism. Crop insurance schemes-yield loss and weather based insurance and their applications. Financial instruments and methods-E-banking, Kisan Cards and Core banking. Concept of supervised credit; objectives of supervised credit; procedures, costs and sources of funds for supervised credit; supervised credit and extension agencies. Agricultural taxation; investment criteria (portfolio analysis). Brief review of institutional lending procedures in India.

Practicals
  Farm Firm Growth and Financial Leverage. External credit rationing. Principals of increasing risk. Repayment capacity and risk bearing ability. Computation of interest rate by different methods. Computation of installment amount using different repayment plans. Ratio analysis for different tools of farm financial analysis.

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