Question

identify four (4) main market failures in the agricultural credit market that make agricultural financing a challenge in developing countries. explain how these market failures can be solved.

Answer 1

Ans: Here we are going to discuss the Indian Agricultural sector which is the live example of agricultural credit failure. So we are going to discuss some of the core truths about the government financing agricultural credit.

Like other countries as ^0% of population till now dependent on agriculture so it needs to better financed by the government sector as the private credit is more burdensome. So the major problems are:

1. Misuse of credit: As the farmers are known to the government's decision from the years so they use to take benefit of that with a minimum interest also they are reluctant to pay off their loan and they will wait till the loan will be wived by pressurizing political terms.

2. Inappropriate distribution: we can say the corruption in distribution of these credits and the distributor will only favorable to the known one. So they will also support them to get some commission.

3. Use of loans for personal purposes: mostly agr\icultural loans are been used for personal i.e. marriage, gambling drinking, etc. so they are well prepared for the excuses. so hardly the government got any profit from these agricultural credits.

4. Unequal distribution and corruption: As we have discussed the most of the agricultural loans are gone to the distributor's known person as there is no such checkpoint to stop this corruption so they will also suggest to them how to escape from the burden of loan.

5. No Proper document: In India till now in agriculture sector financing detail is not documented properly due to the negligence and the bypass nature of mediators.

Remedies:

1. Proper documentation and categorization of schemes so that the credit distribution can be done on a prioritized basis.

2. The proper investigation regarding the farmer and his capability to pay off will reduce the risk of the defaulter. it will keep a check on every farmer.

3. More digitalization and data updates for a strict checkup.

4. Minimizing the role of mediators. so the corruption will be less.

5. Check on multiple credit section to a single farmer.

6. Promoting crop insurance.

There are so many other remedies are available which are area crop or the type of borrower specific.