question_answer

  In India, about 80% of fanners are small farmers, who need credit for cultivation. (a)Why might banks be unwilling to lend to small fanners? (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. (d) Suggest some ways by which small farmers can get cheap credit.    

Answer:

                  (a) Normally, small farmers have no collateral to pledge against loans. Since farming is a high risk activity, banks are unwilling to lend to small farmers. (b) Small farmers can take loans from cooperatives, SHGs (if they are members) or informal sector credit sources like moneylenders, traders, relatives, friends, etc. (c) An example of unfavourable terms of credit is given below Shiva is a small farmer who borrows money at the rate of 4% per month {i.e., 48% per annum) from a local moneylender to grow his crop. The crop fails due to a severe drought. As a result, Shiva has to sell part of his land to repay the loan. Thus, his condition becomes worse than before. (d) Small farmers can get cheap credit from sources like regional rural banks, agricultural cooperatives, SHGs, etc.