Chapter 3 Money and Credit Solutions
Question - 11 : - In India, about 80 per cent of farmers are small farmers, who need credit for cultivation.
Answer - 11 : -
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.
Question - 12 : - Fill in the blanks:-
Answer - 12 : -
a. Majority of the credit needs of the _________________households are met from informal sources.
Answer a: poor
b. ___________________costs of borrowing increase the debt-burden.
Answer b: high
c. __________________ issues currency notes on behalf of the Central Government.
Answer c: Reserve Bank of India
d. Banks charge a higher interest rate on loans than what they offer on __________.
Answer d: deposits
e. _______________ is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the lender.
Answer e: collateral
Question - 13 : - Choose the most appropriate answer.
Answer - 13 : -
1. In an SHG, most of the decisions regarding savings and loan activities are taken by
a. Bank.
b. Members.
c. Non-government organisation.
Answer: b. Members