Question

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..​

Answer 1

Answer:

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Explanation:

(a) Small farmers have no collateral 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 informal lenders including moneylenders, traders, employers, relatives and friends etc.

(c)The terms of credit can be unfavourable for the small farmers because of the crop failure. In this situation credit pushes the farmers into debt trap.

(d)The idea is to organise rural poor, in particular women, into small Self Help Groups (SHGs) and pool (collect) their savings.