question_answer

In India, about 80 per cent 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 unfavourable for the small farmer.

(c) Suggest some ways by which small farmers can get cheap credit.

Answer:

(a) As the fanners find it difficult to provide necessary documents/formalities and collateral security required for loan these banks might be unwilling to lend to small farmers.

(b) These farmers usually borrow from informal sources of credit like moneylenders, employers, relatives, friends, etc.

(c) Terms of credit for small fanners if they borrow from informal sources may carry a very high rate of interest which means that larger part of the earnings is used to repay loan.

(d) Farmers can get cheap credit through cooperatives and SHGs.