question_answer 1)

In India about 80% of farmers are small farmers, who need credit for cultivation.   (a) Why might banks be unwilling to lend to small farmers?   (b) What are the other sources from which the small farmers can borrow?   (c) Explain with an example how the terms of credit can be unfavorable for the small farmer.   (d) Suggest some ways by which small farmers can get cheap credit to.  

Answer:

(a) Small farmers normally have no collateral to pledge against loans. Collateral is an asset that the borrower owns and uses this as a guarantee to a lender until the loan is repaid. That is why banks have no interest to lend to small farmers.   (b) These small farmers take loans from co-operatives, SGHs and informal lenders like moneylenders, traders, employers, relatives and friends, etc.   (c) An example of unfavourable terms of credit for the small farmer is Shiva is a small farmer. He borrows money at the rate of 4 % per month (i.e., 48 % per annum) from a local moneylender to qrow his crop. But the crop fails due to severe drought. As a result Shiva has to sell a part of his land to repay the loan. Now his condition becomes worse than before.   (d) Small farmers can get cheap credit from sources like regional rural banks, agricultural co-operatives and SHGs.