Chapter 4 Farm credit Analysis

Question 1

What is the technological break-through achieved in Indian agriculture?

Answer 1

It made agriculture capital intensive, with farmers needing credit to maximize productivity.

Question 2

Why do farmers in India need credit?

Answer 2

Farmers need credit at the right time, through the right agency, and in adequate quantity to realize maximum productivity.

Question 3

What must a banker assess when a farmer approaches an Institutional Financial Agency (IFA) for a loan?

Answer 3

The banker must be convinced of the economic viability of the proposed investments.

Question 4

What are the three R’s of credit?

Answer 4

Return, Repayment capacity, and Risk-bearing ability.

Question 5

What are the five C’s of credit?

Answer 5

Character, Capacity, Capital, Condition, and Common sense.

Question 6

What does ‘Return’ refer to in the 3Rs of credit?

Answer 6

It refers to the returns from the proposed investment, i.e., profits that cover costs.

Question 7

What does ‘Repayment capacity’ mean in the 3Rs of credit?

Answer 7

It is the ability of the farmer to repay the loan within the stipulated time.

Question 8

What factors determine a farmer’s repayment capacity?

Answer 8

It depends on gross returns, working expenses, family consumption, and other loans due, as well as literacy, managerial skills, and moral character.

Question 9

How do you calculate repayment capacity for crop loans?

Answer 9

Gross income minus working expenses, family living expenses, other loans, miscellaneous expenditure, and crop loan.

Question 10

How do you calculate repayment capacity for term loans?

Answer 10

Gross income minus working expenses, family living expenses, other loans, miscellaneous expenditure, and annual installment for the term loan.

Question 11

What are some causes for poor repayment capacity among Indian farmers?

Answer 11

Small farm holdings, low production, high family consumption, low prices, and unproductive use of credit.

Question 12

What are some measures to strengthen repayment capacity?

Answer 12

Increase net income, adopt improved technology, diversify farm enterprises, and implement risk management strategies.

Question 13

What is ‘Risk-bearing ability’ in the context of farm credit?

Answer 13

It refers to a farmer’s capacity to withstand financial loss due to unfavorable conditions like weather or economic factors.

Question 14

What are the major risks in farming?

Answer 14

Risks due to natural causes (e.g., floods, droughts), and risks due to sudden falls in farm prices.

Question 15

What are the minor risks in farming?

Answer 15

Risks due to technical issues, social hazards, and inefficiency of the farmer.

Question 16

What is the importance of risk in farm credit?

Answer 16

Risk affects a farmer’s ability to repay loans and impacts the creditworthiness of the borrower.

Question 17

What measures can strengthen a farmer’s risk-bearing ability?

Answer 17

Increase equity, reduce farm expenditure, develop moral character, and take up insurance.

Question 18

What does ‘Character’ mean in the 5 Cs of credit?

Answer 18

It refers to the trustworthiness of the borrower, influenced by qualities like honesty and integrity.

Question 19

What does ‘Capacity’ mean in the 5 Cs of credit?

Answer 19

It refers to the borrower’s ability to repay loans, largely determined by income.

Question 20

What does ‘Capital’ mean in the 5 Cs of credit?

Answer 20

It represents the borrower’s net worth and their ability to repay and bear risk.

Question 21

What does ‘Condition’ refer to in the 5 Cs of credit?

Answer 21

It refers to the procedural conditions and requirements for obtaining a loan.

Question 22

What does ‘Commonsense’ mean in the 5 Cs of credit?

Answer 22

It refers to the mutual understanding between the lender and borrower in credit transactions.

Question 23

How do the 5 Cs of credit support the 3 Rs of credit?

Answer 23

The 5 Cs strengthen the indicators of creditworthiness, such as repayment capacity and risk-bearing ability.

Question 24

What are the 7 Ps of credit?

Answer 24

The 7 Ps are: Productive purpose, Personality, Productivity, Phased disbursement, Proper utilization, Payment, and Protection.

Question 25

What does ‘Principle of productive purpose’ mean?

Answer 25

The loan must generate additional income, especially for small farmers who also need consumption credit.

Question 26

What does ‘Principle of personality’ mean?

Answer 26

It refers to the importance of the borrower’s character, especially in cases of loan repayment failure due to natural calamities.

Question 27

What does ‘Principle of productivity’ mean?

Answer 27

Credit should not only increase production but also improve the productivity of other factors employed in the enterprise.

Question 28

What does ‘Principle of phased disbursement’ mean?

Answer 28

Loans should be distributed in phases to ensure proper utilization and prevent diversion for unproductive purposes.

Question 29

What does ‘Principle of proper utilization’ mean?

Answer 29

Borrowed funds must be used for their intended purpose, with proper infrastructure and resources in place.

Question 30

What does ‘Principle of payment’ mean?

Answer 30

It refers to setting a repayment schedule based on the income generated by the investment, with grace periods if necessary.

Question 31

What does ‘Principle of protection’ mean?

Answer 31

Loans should be protected through measures like insurance, linking credit with marketing, and credit guarantees.