Explain with an example how the terms of credit can be unfavourable for the small farmers



Terms of credit include collateral such as land titles, deposits with banks, livestock, building, vehicle, etc which small farmers are not capable of providing.
In case of failure of crops, it becomes impossible for farmers to repay the loan. Terms of credit also include documentation requirement. Small farmers are not capable of providing complicated paper work. Thus, the terms of credit can be unfavourable for small farmer.


Credit involves taking loan from anyone maybe bank,landlords,moneylenders,etc.
Terms of credit involves land documents,houses,personal property such as car,cattles,etc.
Credit can be unfavourable for smaller farmers.they did not have proper land document or other collateral so,t hey did not get loans from bank.
So,they are compelled to lend money from moneylenders,landlords,etc.These people charge high rate of interest about 3-5% monthly.
Farmers invest their lenses money in farming activities . farming is a seasonal activity.when there is flood or drought their crop production failed.they did not money to pay.Again they lend money for farming.May be farming is satisfactory.But the loan has become large due to high interest.
So,they are not able to pay whole dept.s o they have to sell their land to come out of Dept.