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Credit Arrangements

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.

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