Chapter 2 Agricultural Credit - definition and classification

Question 1

What does the word ‘credit’ mean?

Answer 1

The word ‘credit’ comes from the Latin word ‘Credo’, meaning ‘I believe’. It is based on trust, belief, and confidence.

Question 2

What is credit/loan?

Answer 2

Credit or loan is a certain amount of money provided for a specific purpose on certain conditions with interest, which can be repaid sooner or later.

Question 3

How does Galbraith define credit?

Answer 3

Galbraith defines credit as the ‘temporary transfer of asset from one who has to other who has none.’

Question 4

Why is agricultural credit important?

Answer 4

Agricultural credit is crucial for agricultural development programs, helping farmers with the financial requirements for production, family support, land acquisition, and efficiency improvements.

Question 5

What were the major sources of agricultural credit in the past?

Answer 5

Historically, private moneylenders were the major source of agricultural credit, though they were inadequate and exploitative.

Question 6

What is the multi-agency approach to agricultural credit?

Answer 6

A multi-agency approach involves cooperatives, commercial banks, and regional rural banks to provide cheaper, timely, and adequate credit to farmers.

Question 7

What are the financial needs of Indian farmers?

Answer 7

Indian farmers need credit for buying agricultural inputs, supporting families in poor crop years, buying land and machinery, and increasing farm efficiency.

Question 8

How is agricultural credit classified based on time?

Answer 8

Agricultural credit is classified into three types based on time: short-term loans (6-18 months), medium-term loans (18 months-5 years), and long-term loans (5+ years).

Question 9

What are short-term loans?

Answer 9

Short-term loans are to be repaid within 6-18 months and are used for ongoing agricultural operations like sowing, fertilizer application, and labor wages.

Question 10

What are medium-term loans?

Answer 10

Medium-term loans have a repayment period of 18 months to 5 years and are used for purchasing implements, electric motors, and livestock.

Question 11

What are long-term loans?

Answer 11

Long-term loans are repaid over 5+ years and are used for permanent improvements like land reclamation, farm buildings, and purchasing large machinery.

Question 12

How is agricultural credit classified based on purpose?

Answer 12

Agricultural credit is classified into four types based on purpose: production loans, investment loans, marketing loans, and consumption loans.

Question 13

What are production loans?

Answer 13

Production loans, also known as crop loans or seasonal agricultural operations loans, are for crop production and are repayable within 6-18 months.

Question 14

What are investment loans?

Answer 14

Investment loans are given for the purchase of equipment like tractors, pumpsets, and tube wells, with benefits distributed over multiple years.

Question 15

What are marketing loans?

Answer 15

Marketing loans help farmers avoid distress sales and market their produce better, usually based on the value of their stored produce.

Question 16

What are consumption loans?

Answer 16

Consumption loans are for non-productive purposes, helping farmers during calamities. They are repaid within 2.5 years and are extended based on group guarantees.

Question 17

What are secured loans?

Answer 17

Secured loans are advanced against security, such as personal security, collateral security, chattel loans, mortgages, or hypothecated loans.

Question 18

What is personal security?

Answer 18

Personal security means the borrower acts as the guarantor for the loan, and third-party guarantees may or may not be required.

Question 19

What is collateral security?

Answer 19

Collateral security involves pledging movable properties like LIC bonds, fixed deposits, machinery, or livestock to secure a loan.

Question 20

What are chattel loans?

Answer 20

Chattel loans are obtained by pledging movable properties like jewelry or utensils, often from pawn-brokers.

Question 21

What is a mortgage loan?

Answer 21

A mortgage loan involves pledging immovable properties like land or buildings as security. It can be a simple mortgage (ancestral property) or equitable mortgage (self-acquired property).

Question 22

What are hypothecated loans?

Answer 22

Hypothecated loans involve movable property (like machinery) where the borrower retains ownership but the lender has a right to sell in case of default.

Question 23

What are unsecured loans?

Answer 23

Unsecured loans are based solely on the borrower’s trust and confidence, with no security involved.

Question 24

What are institutional and non-institutional credits?

Answer 24

Institutional credit is provided by institutions like cooperatives and banks, while non-institutional credit is lent by individuals like moneylenders and traders.

Question 25

What are the classifications of borrowers for agricultural credit?

Answer 25

Borrowers can be classified based on their business activity (e.g., farmers, artisans), farm size (e.g., small, medium, large farmers), or location (e.g., hill or tribal farmers).

Question 26

How is credit classified based on liquidity?

Answer 26

Credit can be classified into self-liquidating loans (repaid within one year, e.g., crop loans) and partially-liquidating loans (repaid over multiple years, e.g., tractor loans).

Question 27

What is the individual approach in agricultural credit?

Answer 27

The individual approach involves loans given to individuals for different purposes, such as crop loans or machinery loans.

Question 28

What is the area-based approach in agricultural credit?

Answer 28

The area-based approach involves providing loans to individuals in specific regions for targeted purposes, such as drought relief loans.

Question 29

What is the Differential Interest Rate (DIR) approach?

Answer 29

Under the DIR approach, loans are provided at a lower interest rate (e.g., 4%) to weaker sections of society.

Question 30

What are direct loans?

Answer 30

Direct loans are provided directly to farmers for specific purposes, such as crop loans.

Question 31

What are indirect loans?

Answer 31

Indirect loans are provided to agro-based firms like fertilizer or pesticide industries, which indirectly benefit farmers.