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.
80 % of farmers in India are small farmers. As they are dependent on rain , which sometimes fails resulting in crop failure , the farmers are in debt. To over come this situation farmers need to get credit on low interest rates.
(a) Bank loans require proper documents and collateral. Absence of collateral is one of the major reasons why the banks are not willing to lend to small farmers.
(b) Farmers sometimes borrow loans from traders and money lenders. These informal sources of credit are a burden for the farmers as the rate of interest is very high.
(c) When the cultivation of any crop is dependent on rain , a natural resource, then cultivation is risky. If rains fail there is crop failure, then credit at a high interest rate, pushes the person into a debt-trap. To repay the loan the farmer has to sell his assets. Then he is much worse off than before. Whether credit would be useful or not, therefore, depends on the risks in the situation.
(d) Banks and cooperative societies need to lend more to the underprivileged so that they could grow crops, do business, set up small-scale industries etc. Farmers can also get loan from SHGs.
In situations with high risks, credit might create further problems for the borrower. Explain.
Manav needs a loan to set up a small business. On what basis will Manav decide whether to borrow from the bank or the moneylender? Discuss.
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.
How does money solve the problem of double coincidence of wants? Explain with an example of your own.
In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary?
In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary?