(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.
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