(a) Explain briefly each of the following types of credits in agricultural production: (i) short term credit (ii) mediunfo term credit (iii) long term credi...

Answer Details

(a) Types of credit in agricultural production:

• (i) Short term credit: This is a loan granted for a short period, usually up to one year, used to meet running or recurrent expenses such as buying seeds, fertilizer, agro-chemicals and paying labour. It is repaid after harvest and sale of produce.
• (ii) Medium term credit: This is a loan given for a moderate period, usually between one and five years, used to buy items of medium durability such as work animals, small implements, dairy stock and to fence or improve the farm.
• (iii) Long term credit: This is a loan granted for a long period, usually above five years, used for heavy capital investment such as buying land, tractors and machinery, erecting farm buildings and establishing plantations or orchards.

(b)(i) Four sources of agricultural credit:

1. Commercial and agricultural (development) banks
2. Government agencies and schemes (for example the Agricultural Credit Guarantee Scheme)
3. Co-operative societies and thrift societies
4. Money lenders, friends and relatives

(b)(ii) Four reasons why farmers find it difficult to get loans from banks:

1. Lack of collateral security: Many small farmers have no land title, buildings or other acceptable assets to pledge against the loan.
2. High risk of farming: Because farming is exposed to drought, flood, pests and diseases, banks fear the farmer may not be able to repay.
3. Illiteracy and poor record keeping: Many farmers cannot prepare the loan applications, feasibility reports and accounts that banks demand.
4. High interest rates and short repayment periods: The cost of borrowing is high and repayment terms often do not match the farmer's harvest season, discouraging both the farmer and the lender.

(Other reasons include remoteness of banks from rural areas and cumbersome loan procedures.)