Question -
Answer -
a. Why might banks be unwilling to lend to small farmers?
Answer: Banks might be unwilling to lend money to small farmers because there are high risks. If the harvest gets ruined, there is a possibility that they might not be able to receive the instalments on time. Also, proper documentation is required for getting a loan from the bank, which might not be available with the small scale farmers.
b. What are the other sources from which the small farmers can borrow?
Answer: Small farmers can move to informal sources of credit if they re not borrowing money from a bank. These informal sources of credit include moneylenders, agricultural traders, etc.
c. Explain with an example of how the terms of credit can be unfavourable for the small farmer.
Answer: When a small scale farmer borrows money from a bank, he has to repay the amount at a fixed rate of interest. For example, if a farmer borrows money from the bank and during the harvest season his crops are ruined, then he shall not be able to repay the amount loaned him by the bank and will further fall into the debt trap.
d. Suggest some ways by which small farmers can get cheap credit.
Answer: Small farmers can get cheap credit by the formal sources of credit like banks.