How a credit lifeline for India’s farmers has turned into a debt trap | Debt News

Meerut, India – The final of the paint had begun to peel off Mohammad Mohsin’s home two years in the past. The light inexperienced, white and yellow paints on the partitions nonetheless bore stains from final 12 months’s monsoons.

A slim, 3-foot-tall (0.9 metres) passage solely doable to enter by crouching, led from the kitchen right into a courtyard lined with buffalo dung, a rusting scooter, and a creaking cot in northern India’s Meerut district, about 100km (62 miles) from New Delhi.

“We’ll get the home painted when it’s lastly marriage ceremony time,” Mohsin had mentioned, leaning on an iron shovel, when Al Jazeera visited him in February earlier this 12 months, referring to his sister Aman’s marriage ceremony plans.

However the date for the marriage got here and went – with out it being solemnised.

In 2023, Mohsin had borrowed roughly $1,440 beneath the Indian authorities’s Kisan Credit score Card (KCC) scheme. “Kisan” means “farmer” in Hindi.

Launched in 1998, the KCC initiative is meant to modernise rural credit score by offering accessible, short-term, low-interest credit score to farmers for agricultural bills, thereby changing exploitative personal moneylenders.

Issued towards land holdings, the KCC operates like a revolving credit score line, permitting farmers to borrow at the beginning of a crop cycle and repay after the harvest. With a modest rate of interest of 4 p.c yearly, the scheme is among the many most accessible monetary devices for tens of millions of farmers.

However for years now, the KCC scheme has deviated from its authentic function. Farmers in rural India, the place agriculture barely sustains households and the place dowry in marriages is the norm, have used KCC loans as a handy however harmful different to household earnings.

The KCC cash Mohsin borrowed in 2023 from a state-run financial institution’s native department was not meant to sow sugarcane or purchase fertiliser. He all the time meant to make use of it for his sister’s dowry: Aman’s potential in-laws had demanded a Maruti Wagon-R automotive, a bigger Mahindra Scorpio SUV, and tons of of hundreds of rupees in money, when the wedding was deliberate.

KCC seems to be and can be utilized like a daily bank card, together with for money withdrawals. Clutching the household’s KCC card issued in his father Mohammad Kamil’s identify, Mohsin withdrew the cash from an ATM and went straight to a automotive seller in Meerut to make the down fee for a Wagon R automotive.

In February 2025, Aman’s proposed marriage collapsed beneath a brand new set of dowry calls for. By now, Mohsin was already in important debt and had no cash to sow crops, or put money into seeds or farm equipment.

He was additionally saddled with the automotive he had purchased for the groom. He missed paying the month-to-month instalments just a few instances. When farmers fail to repay throughout a crop cycle, the rate of interest jumps from 4 p.c to 7 p.c, which is what occurred with Mohsin.

He now repays the mortgage in small instalments, however is aware of that he might be enjoying catchup for years. And the longer he delays his funds, the upper the chance that the mortgage might be categorized as a non-performing asset (NPA), damaging his credit standing and future borrowing capability.

In the meantime, 22-year-old Aman completed Fazilat, a seven-year course in Islamic theology provided by Darul Uloom, a distinguished Muslim seminary in Deoband, about 80km (50 miles) from Meerut. The course is taken into account the equal of a bachelor’s diploma from a daily school.

Aman’s household has additionally resumed its seek for one other groom. “I’ll get married when the best household agrees,” Aman instructed Al Jazeera.

However households don’t simply agree. They negotiate – and dowry is the forex. Tens of hundreds of Indian ladies have been killed by their in-laws over dowry calls for. In 2024 alone, India noticed a dowry-related dying each 30 hours, in response to knowledge from the Nationwide Crime Data Bureau.

“In our a part of the world, no dowry means no groom,” Aman’s 60-year-old mom, Amina Begum, instructed Al Jazeera, sitting in one of many corners of their sparse house.

As soon as a groom is finalised and the brand new dowry calls for are negotiated, Mohsin will want money once more. And he might must depend on the KCC scheme, once more.

However a brand new KCC mortgage can’t be sanctioned till the earlier one is absolutely repaid. The one method round this entails native middlemen who assist farmers repay the curiosity on current KCC loans, and get the principal renewed within the financial institution as a contemporary mortgage. In alternate, these middlemen cost an rate of interest as excessive as between 2 and 5 p.c per day.

The consequence: If Mohsin will get one other KCC mortgage sanctioned, he might want to use that to additionally repay the middlemen who helped him get it – perpetuating the cycle of indebtedness he’s trapped in.

‘System breaks your dignity’

India’s farmers obtain restricted state help for surprising or heavy private bills, similar to hospital payments, kids’s training, social obligations, and even weddings – usually forcing them to depend on casual credit score or agricultural loans meant for farming wants.

As an illustration, India’s public healthcare spending is among the many lowest globally, constantly beneath 2.5 p.c of the gross home product (GDP). The restricted sources put a major pressure on poor households in instances of medical emergencies.

In consequence, throughout India’s agrarian belt, primarily within the north, the KCC scheme is being drained to plug life’s emergencies, exposing a deep rural misery.

A farmers’ union chief and a politburo member of the Communist Celebration of India, Vijoo Krishnan, says that along with weddings, farmers are more and more utilizing KCC loans for healthcare and training. This diversion of cash results in what Krishnan calls a “improvement debt lure”, the place farmers are compelled to tackle loans simply to fulfill primary survival wants, somewhat than to put money into productiveness or progress.

A 2024 examine printed in The Pharma Innovation Journal, an Indian interdisciplinary publication that additionally options analysis in agriculture and rural improvement, discovered that solely a fraction of KCC loans go in direction of agriculture. About 28 p.c of the KCC-holding farmers who have been respondents within the examine mentioned they used the fund for family wants, 22 p.c for medical bills, 14 p.c for youngsters’s training, and practically 10 p.c for marriage-related bills.

“Farming barely pays sufficient to maintain a household,” mentioned Mohammad Mehraj, the previous head of Mohsin’s Muslim-majority village of Kaili Kapsadh. “If there’s a medical emergency or a marriage, the strain is an excessive amount of.”

The worry of reimbursement haunts farmers, rooted within the deep disgrace that failure brings. Everybody has heard the tales. “In a close-by village, a person in his forties was declared a defaulter. His identify was learn out within the village sq.. The disgrace was so insufferable that his spouse moved again to her mother and father’ house,” Mohsin recalled. The person in query, he says, has not been seen since. Nobody is aware of if he fled, or if he’s even alive.

Mohsin lives with the identical worry. “The system doesn’t break down your door, it breaks your dignity,” he mentioned. In small villages with close-knit communities, a financial institution official’s go to to the home to hunt reimbursement of loans is seen as a humiliation to be prevented in any respect prices.

“I’d somewhat starve than have a financial institution man knock on our door,” mentioned Mohsin’s father, Kamil, who’s in his 70s, his voice barely above a whisper. Round him, others nodded in settlement.

To flee disgrace, farmers like Mohsin depend on the middlemen who cost a steep rate of interest to assist them renew KCC loans with out settling the principal.

Thomas Franco, a former basic secretary of the All India Financial institution Officers’ Federation, mentioned that whereas schemes like KCC have expanded credit score entry for farmers, they’ve additionally created a debt lure.

“On the harvest time, many farmers, already burdened with earlier money owed, are compelled to take further loans. Loans supposed for productiveness usually get diverted to fulfill instant social obligations,” he instructed Al Jazeera.

By 2024, the Indian authorities’s official knowledge reveals that the KCC scheme had disbursed greater than $120bn to farmers, a pointy rise from $51bn in 2014.

However these numbers masks a extra advanced actuality during which banks turn out to be part of the serial indebtedness disaster, whereas showcasing excessive numbers of mortgage disbursals, Franco mentioned.

“The loans get renewed yearly with out precise reimbursement, and within the financial institution’s books, it reveals as a contemporary disbursal, regardless that the farmer doesn’t get the precise funds. This exaggerates the success numbers,” he mentioned.

In the meantime, as India’s farmers discover themselves buried in mountains of debt, many are taking their very own lives.

In 2023, Maharashtra, India’s richest state, contributing about 13 p.c to the nation’s GDP, reported the highest number of farmer suicides – at 2,851. This 12 months, Maharashtra’s Marathwada area is likely one of the worst hit. Within the first three months of 2025 alone, the area recorded 269 suicides, marking a 32 p.c improve from the identical interval in 2024.

In neighbouring Karnataka, between April 2023 and July 2024, 1,182 farmers died by suicide, primarily because of extreme drought, crop loss and overwhelming debt. Within the northern state of Uttar Pradesh, farmer suicides rose by 42 p.c in 2022, in contrast with the earlier 12 months. Equally, Haryana, additionally within the north, reported 266 farm suicides in 2022, up 18 p.c from 225 in 2021.

Critics argue that with out deep structural reforms geared toward offering higher public welfare programs for farmers and their households, similar to reasonably priced healthcare, high quality training, and reforms to make farming worthwhile, schemes just like the KCC will stay short-term options.

Jayati Ghosh, a number one improvement economist and professor on the College of Massachusetts Amherst, mentioned that India’s agricultural credit score system is basically out of sync with how farming works.

“Crop loans are sometimes structured for a single season, however farmers usually must borrow effectively earlier than sowing, and might solely repay after harvesting and promoting. Forcing reimbursement inside that slim window is unrealistic and dangerous, particularly when farmers lack the help to retailer crops and anticipate higher costs,” she mentioned.

Ghosh, who co-authored a 2021 coverage report for the Andhra Pradesh authorities and has studied agrarian misery for greater than three a long time, instructed Al Jazeera that key Indian monetary establishments – the Reserve Financial institution of India (RBI), the central financial institution and NABARD, the apex rural improvement financial institution – have been in charge for treating agriculture like some other business enterprise.

“The failure lies with NABARD, the RBI and successive governments. Agricultural lending must be subsidised, decentralised and designed round actual situations within the discipline,” she mentioned.

Schemes just like the KCC, she mentioned, are constructed on the flawed perception that money alone can resolve rural misery.

“We’ve constructed a credit score system assuming farmers simply want cash. However with out funding in irrigation, land safety, native crop analysis, storage and market entry, loans gained’t resolve the disaster,” she mentioned.

‘I ponder if farming even has a future’

The KCC scheme has additionally been riddled with controversies, with a number of loan scams surfacing throughout India lately.

In Kaithal, a city in northern Haryana state, six farmers used solid paperwork to safe practically $88,000 in loans, which ballooned to $110,000 earlier than detection, because of accrued curiosity over time after the farmers didn’t repay them.

Within the Himalayan state of Uttarakhand, agricultural seller Mohammad Furkan, in collusion with a financial institution supervisor, created pretend payments and ghost loans value $1.2m in 2014, incomes him a three-year sentence in March 2023.

In Lucknow, the capital of Uttar Pradesh state the place Meerut is positioned, three State Financial institution of India managers sanctioned about $792,000 in fraudulent KCC loans between 2014 and 2017, utilizing solid land information and faux paperwork. The federal Central Bureau of Investigations (CBI) booked them in January 2020 after an inner financial institution inquiry. The matter continues to be being probed.

But, financial institution officers say that regardless of years of scams and pink flags, the KCC scheme continues to endure from weak oversight.

“There’s no systemic verify in place,” mentioned a mortgage disbursal agent affiliated with the Nationwide Financial institution for Agriculture and Rural Growth (NABARD), who has been processing KCC functions in rural Uttar Pradesh for greater than a decade. He spoke to Al Jazeera on situation of anonymity, as he isn’t authorised to talk to the media.

However even when the KCC was cleaned up and all scammers punished, it might not resolve the issue, say some farmer leaders.

“This isn’t about debt. It’s about dignity,” mentioned Dharmendra Malik, the nationwide spokesperson of the Indian Farmers’ Union, a distinguished group. “You’ll be able to’t resolve agrarian misery with simple loans. You want funding in irrigation, storage, training and assured costs for the crops.”

Again in Kaili Kapsadh, Mohsin’s buffalo stood tethered within the courtyard, swatting flies with its tail. It’s value $960 and, on this village, that could be a standing image, akin to proudly owning a classic automotive in a rich city suburb.

However status doesn’t pay again loans. Mohsin has not been in a position to renew his household’s KCC mortgage, value about $1,500, for greater than two years. He’s nonetheless repaying the final one.

Every harvest yields the identical bitter crop for him: extra payments and losses. Taking a look at his sugarcane fields, already browning beneath a harsh solar, he mentioned: “Typically I ponder if farming even has a future.”

Should you or somebody you realize is vulnerable to suicide, these organisations might be able to assist.