Question

Read the given source and answer the questions that follow:

Arun’s Story Arun supervises the work of one farm labourer. Arun has seven acres of land. He is one of the few persons in Sonpur to receive bank loan for cultivation. The interest rate on the loan is 8.5 per cent per annum, and can be repaid anytime in the next three years. Arun plans to repay the loan after harvest by selling a part of the crop. He then intends to store the rest of the potatoes in a cold storage and 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.

1. Under which source does Arun’s loan come? 1
2. Mention one important term of credit for taking a loan from the bank. 1
3. How is Arun’s loan beneficial? Explain any two reasons. 2

Answer 1

1. Arun's loan is from a formal source of credit, namely a bank. According to the source, Arun acquired a bank loan for cultivation, which is typical of conventional credit organisations that offer loans with regulated terms, such as fixed interest rates and payback schedules, as opposed to informal sources like moneylenders or family.
2. One essential credit term for Arun's bank loan is the annual interest rate of 8.5%. This rate defines the additional cost Arun must pay for the borrowed funds, altering his repayment strategy and financial planning.
3. Arun’s bank loan is beneficial for two key reasons.
   • It offers financial assistance for cultivation, allowing him to invest in seeds, fertiliser, or equipment, so increasing agricultural production and income.
   • The loan's liberal repayment conditions, which allow payback within three years, alleviate financial burden. Arun can repay after the harvest by selling a portion of his product and storing the remainder in cold storage to get another loan, assuring ongoing credit for future farming requirements and fostering economic stability.