Question

In: Economics

In Shehzad Goth, a small village of Balochistan swarms of locusts attacked the cotton crop area...

In Shehzad Goth, a small village of Balochistan swarms of locusts attacked the cotton crop area and damaged the crop belt of the village. Muhammad Din’s farm got affected the most because of it, for his survival he now wants to earn his livelihood with the cattle and dairy farming but he’s afraid to lose it all just like his crops and also lacks sufficient credit. His landlord suggested him to contact the microfinance institution located in the nearby area.

Reflect on the above situation and suggest the possible options as a MFI representative and exemplify how the microfinance options suggested can flourish Muhammad Din’s business.

Solutions

Expert Solution

The farmer wants to earn his livelihood with the help of the cattle and through dairy farming. But he lacks credit.

Thus as a Microfinance institution representative I can suggest the farmer to take a loan against his cattle, which can serve as a collateral, if he defaults. Additionally as a representative, I will look at the history such as credit behaviour and base the acceptability and loan size not just on the size of the collateral. As it is a new activity for the farmer, I will further help put it into progress.

As MFI's thrive in building close relationships with the borrowers, the farmers budget could be managed which will help the farmer flourish as they often lack in skills. Thus with the help of training programs, and focus on credit, the farmer could be able to better monitor his spends and savings, which wouldn't have been possible without the MFI.

The repayment schedule could be framed in such a way wherein it suits the farmer and he has enough working capital left to cover emergency expenditure.

He can also seek a loan by being a part of a group of borrowers, so that there is no need of a collateral and because of the social pressure of the group there are timely repayments. With the help of a representative group such as a self help group the borrower is compelled to do timely repayments, this will make him/her aware and would result in him/her working hard in order to fulfill the repayment schedule. Thus eventually the productivity will increase and the farmer will be compelled to not spend too much on discretionary products which will help him grow the business.


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