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. (d) Suggest some ways by which small farmers can get cheap credit.
Answers
1) small farmers usually do not have any collateral to pledge against the loans.
2)they can take loans from cooperatives, SGH's and informal lenders like relatives, moneylenders, traders etc.
3) Credit involves taking loan from anyone maybe bank,landlords,moneylenders,etc. Terms of credit involves land documents,houses,personal property such as car,cattles,etc. Credit can be unfavourable for smaller farmers.they did not have proper land document or other collateral so,t hey did not get loans from bank.So,they are compelled to lend money from moneylenders,landlords,etc.These people charge high rate of interest about 3-5% monthly. Farmers invest their lenses money in farming activities .Again they lend money for farming.May be satisfactory but the loan has become large due to high interest.
So,they are not able to pay whole dept.s o they have to sell their land to come out of Dept.
4)The small farmers can get cheap credit from the different sources like, Banks, Agricultural cooperatives, regional rural banks and SHGs.
Heyy mate hope it helps...............................................
Explanation:
(a) 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.
(b) Money lenders, relatives, friends, cooperative societies etc.,
(c) 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.
(d) Farmers can get credit at cheaper rates of interest from formal sources of credit like banks and cooperative societies