Question

Q. 1. Complete the following statements :
1) Rural credit system assumes importance
because
a) It leads to an increase in the rural income.
b) Savings are inadequate to finance farming and
other economic activities.
c) It leads to overall development of the rural
areas.
d) It leads to reduction in rural inequality.
2) Productive loans are economically justified
because
a) They are related to agricultural production.
b) They are used for personal consumption.
c) They help in eradication of poverty
d) They improve the quality of life of the people
3) Small farmers are unable to access rural credit
provided by banks due to ...............
a)Presence of money lenders.
b)No branches in rural areas
c)High transaction costs
d)Preference given to large farmers.
4) The rights of socially disadvantaged groups can
be safe guarded through ..
a) empowerment of women​

Answer 1

Answer:

The purpose of this chapter is to examine the particular features of rural financial services that need to be considered in deciding what forms of, and approaches to, decentralization may be appropriate.

KEY POINTS

Credit is a private good but the fact that it involves an exchange of access to resources now for an undertaking to repay in the future makes it different to other services. This generates screening, incentives and enforcement problems for those supplying loans.

Centralized and directed credit provision was based on the misconceptions that the priority need for rural borrowers was to finance agricultural production and that farmers were too poor to pay market rates for credit.

The new paradigm advocates the development of rural financial systems and the decentralization of rural credit provision through a variety of institutional and organizational devices.

An important policy setting and regulatory and promotional role remains for central government.

The most far-reaching objective of decentralization of rural financial services is to mobilize the potential of rural financial markets.

Answer 2

The answers in this case,would be respectively are options b) from question 1,option d) for question 2 and option c) for question 3).

Explanation:

• One of the main and foremost objectives of the rural credit system is to enable the farmers and agricultural communities to appropriately avail the necessary inputs and factors of production of conduct agricultural farming and cultivation and practice other rural or agricultural based economic activities.
• The productive loans are primarily meant to boost the self-sufficiency of the general population by enabling them to open up various independent entrepreneurial initiatives and providing access for different groups of people to various necessary goods and services to ensure better overall standard of living from social and economic perspectives.
• Small farmers are often unable to adequately access the rural credit as it is commonly difficult for the banks and financial institutions to understand how much loan they should be approved.This is due to the fact that they are not able to accurately examine the required information to understand the credit eligibility of the small and marginal farmers such as the creditworthiness of these farmers, the timeline for the complete repayment of the loan,determination of appropriate interest rate and so on.In other words, the transaction cost associated with the loan approval process is relatively higher for the small and marginalized farmers.