Question

In India, about 80% of farmers are small farmers who need credit for cultivation.(5m) Why banks might be unwilling to lend to small farmers? What are the other sources from which the small farmers can borrow? Explain with an example how the terms of credit can be unfavorable for the small farmers.

Answer 1

Answer:

Banks might be unwilling to lend small farmers because small farmers usually lack in providing the required documentation for loan processing. Small farmers may also fail to provide collateral security as requested by the banks.

Money lenders, relatives, friends, cooperative societies etc.,

Small farmers may take loan from money lenders at higher rates of interest for farming purposes and may not be able to pay back. This results in selling a portion of farmers' land and paying back to the money lender.

Farmers can get credit at cheaper rates of interest from formal sources of credit like banks and cooperative societies.

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Explanation:

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