Question 11: In India, about 80 percent of farmers are small farmers, who need 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 of how the terms of credit can be unfavorable for the small farmer.
(d) Suggest some ways by which small farmers can get cheap credit.
Answer:
(a) Banks ask for proper document before providing loans. But the small farmers might not be able to provide such documents. In addition to this there is possibility that the small farmers fail to repay the loan if their crop gets ruined due to dome reason. So banks might not be willing to lend to small factors as there are high risks.
(b) Apart from the banks, other sources from which the small farmers can borrow include informal sources of credit like local money lenders, agricultural traders, nig landlords, cooperatives SHGs etc.
(c) The terms of credit can be unfavorable for the small farmer can be explained with the help of the following example: It a farmer borrows money from the bank during the harvest season his crops are ruined. Then he small not be able to repay the loan to the bank. He might have to sell a part of his land to repay the amount. In such condition he will further fall into the debt trap.
(d) The small farmers can get cheap from the different sources like banks, agricultural cooperatives and SHGs.
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