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Question
In India, about 80 per cent of farmers are small farmers, who need credit for cultivation.
Explain with an example of how the terms of credit can be unfavourable for the small farmer.
Solution
The terms of credit can be unfavourable for the small farmer if he has a bad crop, and is forced to either surrender his collateral (if he borrowed from a bank) or sell off a part of his land (if he borrowed from the informal sector), in order to repay his loan.
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