Let us look into three credit arrangements:
- A small farmer borrows money from an Agricultural trader.
- The rate of interest is 36 % per annum.
- The trader supplies farm inputs like seeds and fertilizers.
- In addition to the interest and capital the farmer has to sell his crops only to the trader.
- The farmer has to accept the price offered by the trader.
- The trader not only gets a interest for his loan, but also earns a huge profit from selling the crop at a very high price.
- A farmer borrows money from a bank
- The rate of interest is 8.5 % per annum.
- The loan can be repaid anytime in the next three years.
- The farmer plans to repay the loan after harvest by selling a part of the crop.
- The farmer will then store the rest of the potatoes in a cold storage and sell it when the price is high.
- The farmer can apply for a fresh loan from the bank against the cold storage receipt. The bank offers this facility to farmers who have taken crop loan from them.
- An agricultural labourer borrows money from her employer to meet the expenses for sudden illness in the family.
- The rate of interest is 60 % per annum
- The labourer has to repay her loan by working for the employer.
- The employer does not treat the labourer well
- Employers are the only source of credit for the landless agricultural labourers.