SS2 Lesson Note on the Agricultural Finance: Classification and Source of Credit

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TOPIC: AGRICULTURAL FINANCE CONTINUED

CONTENTS:

1. CLASSIFICATION OF CREDITS
2. TYPES OF CREDITS
3. CLASSIFICATION BASED ON SOURCES OF CREDITS
4. CLASSIFICATION BASED ON LIQUIDITY:
5. PROBLEMS FACED BY FARMERS IN PROCURING AGRICULTURAL CREDITS

CLASSIFICATION OF CREDITS

Credits are loans obtained by a farmer to start or expand his farming business. It may be in kind or cash. Credits are payable over a period of time with some interest determined by the source of the credits. Before credit is given out to a farmer, the lender needs detailed information about the borrower. Certain vital statistics should be provided. Such as:

• Reliability of the citizen
• The intended purpose
• The plan for the proposed projects (feasibility Studies)
• The ability of the farmer to execute the project successfully
• Collateral Security in form of:

1. Landed property (stationed in good site)
2. Stocks and shares
3. Life assurance policy

  TYPES OF CREDITS

There are three types or classes of credits given to the farmers. They are based on length or period namely:

1. Short term credits
2. Medium-term credits
3. Long term credits

SHORT TERM CREDIT: This is a productive credit which the borrower is expected to refund in a year or less. It may be used to purchase livestock feeds , fertilizers, seeds, or to pay for hired labour. They are used to produce crops such as grains and cereals and animals that mature within short period such as broilers in poultry.

MEDIUM TERM CREDIT: This credit is to be repaid within a period of two to five years . It may be used to purchase machinery, breeding livestock. It can also be used for biennial crops such as cassava. The interest rate is comparatively low.

LONG-TERM CREDIT: This credit is repayable within a period of 5 – 20 years. It can be used to purchase costly fixed assets such as land, construction of farm buildings, dams and irrigation projects. It attracts interest which can be serviced for a long term.

CLASSIFICATION BASED ON SOURCES OF CREDITS

1. Institutional Credits: Credits can be obtained from institutions in the form of cash. Such institutions include banks , cooperative societies, government and non-governmental organizations
2. Non-institutional Credits: These are credits sources which are :
3. personal savings
4. friends
5. gifts
6. relatives
7. money merchants( money lenders)

CLASSIFICATION BASED ON LIQUIDITY:

1. Loan in Cash: These are loans received in cash. E.g Loans from banks, cooperative society
2. Loan in Kind: These are subsidies provided on farm inputs such as equipment and machinery . They are the assistance render to the farmers in form of a material provision

DIFFERENCES BETWEEN CREDITS AND SUBSIDIES: The table below shows the differences between credits facilities and subsidies

CREDITS	SUBSIDY
1.      they are repayable loans with or without interest	Financial aids in the form of lump sum
2.      it is always in cash	It may be in cash or kind
3.      it is repayable	It is non- repayable
4.      it includes bank loans, credit scheme	It includes reduction in prices of inputs like chemicals, seeds, fertilizers etc
5.      it has a time period	It is given and never to be returned
6.      government does not bear part of the burden	The government bears part of the burden

TOPIC: PROBLEMS FACED BY FARMERS IN PROCURING AGRICULTURAL CREDITS

CONTENTS:

1. agricultural credits
2. problems faced by institutions in granting loans

Sub-topic 1: Problems Faced By Farmers in Procuring Agricultural Credits

Farmers face a lot of problems in obtaining loan/credit facilities, some of these problems are

1. Farmers may not have the necessary collateral security to obtain loan.
2. Agricultural projects such as crop and animal production takes time to mature
3. The risk involves in agricultural projects : Farmers are faced with a lot of natural hazards such as adverse weather conditions and drought

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