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 unfavorable for the small farmer.

(d) Suggest some ways by which small farmers can get cheap credit.

(a) Banks might not be willing to lend to small farmers because it is aware of the situations and conditions a small farmer suffer from and in this case despite giving loan he won’t be able to pay his debts and that will be the loss of bank. Neither a farmer has any such asset to put as mortgage nor would any kind of documental procedure be done by them.

(b) The farmers can borrow from moneylenders living nearby their villages or their relatives or friends. The other way is self-help groups, they too help them in lending loans to start any kind of small business if the farmer is suffering a lot and dying of starvation and some other issues. Cooperative banks may help them more in this matter.

(c) A small farmer may face the unfavorable conditions of credit in case if unfortunately the farmer has a bad crop, and is forced to either surrender his collateral or sell off a part of his land, in order to repay his loan. May be because of weather or some natural disaster his all crop are destroyed and now he has not even a single penny to start any other business to repay his debts.

(d) Farmers can get a cheap credit at low interest rates or no interests from the self-help groups as they don’t ask for any and cooperative banks shall be more helpful as they are their just to help the farmers their main motive of operating these banks is to help the farmers in bad situation.