Smallholding Farmers and the Vicious Cycle of Loans to cover Input Costs

Smallholding farmers constitute a significant portion of the world’s population, with an estimated 450-500 million farmers worldwide, representing 85% of the world’s farms. Shockingly these smallholder farmers are estimated to represent half of the hungry worldwide. Lower incomes, unpaid dues, unfavorable climate have had a cascading and crippling effect on the rural economy.

 Desperate times call for desperate measures, the saying goes. And that is the exact situation our agriculture industry is in. Scheduled commercial banks are obliged to give subsidized loans to farmer at 7% per annum for agriculture and allocate up to 18% of their lending to this segment. But untimely release of funds by the government, demand for detailed documentation at nationalized and state level banks, unavailability of loans due to existing loans, delayed approval process – all contribute to a scenario where farmers start seeking money from private lenders. And the whole system is so much steeped in corruption and mismanagement that despite stringent laws being in place by the government to protect farmers, loan sharks pull farmers to this debt trap.

  Loans are taken to cover the input costs of agriculture like buying seeds, fertilizers or tractors for sometimes as high as 26% interest from unscrupulous people. Ideally once the crops are sold, they should be able to repay the loans. But unfortunately, that does not happen. At times due to crop failure or no buyers or unfair pricing all the farmer is left with is very little money in hand. The burden of interest for the farmers is way higher than what their asset value can hold and what they actually receive.

 Not just non-availability of funds but the timely availability of the same plays a crucial role. With loans generally coming through during the harvest season or loan waiver disbursement coming through in other periods, the farmers are left high and dry during the actual need of funds in the sowing season. But poor farmers often do not realize this and after defaulting on repayments, they end up taking another loan from another moneylender for the next harvest season to cover their costs. Thus, they are drawn into this never-ending vicious cycle of loans. This dependency on credit in agriculture is one of its biggest drawbacks.

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As per reports barely 30% farmers seek for loans from nationalized banks. Most of the poor farmers are uneducated and sometimes there are not much document evidence to support their claim for loans. Lengthy process, complex paper work and language barrier pose great challenges for a common farmer who has to run from pillar to post for getting their dues. To avoid such legality, farmers often end up taking debt from local private moneylenders. Thus, despite the presence of banks and cooperative credit institutions, the reported source of farm credit for tiny plots of land of below <0.01HA is still the traditional money lender. 

According to study, indebtedness among farmers is in inverse proportion to the extent of land they held, the smaller ones carrying large debt burdens on their shoulders. This acute distress of the farm sector could be best addressed with steps that could ensure remunerative prices for farm produce. In this modern age many tools and technology has come to the market which can benefit the farmers and uplift the agricultural economy.

 Qlikchain’s Agtech platform including TruVito ( and AcreCX ( aims to solve this issue by working directly with farmers, through creation of sustainable and solvent farming practices. TruVito offers microloans to farmers based on forward contracts managed via the marketplace platform AcreCX. It offers a Blockchain powered agri-marketplace for fast, secure and verifiable spot and forward sales. This marketplace backed by smart contracts enables farmers and buyers to buy and sell commodities at future dates while eliminating transaction risks. With assured buys and elimination of third parties’ farmers can become self-reliant and can significantly increase their income to cover their input costs for harvest and save for the future too.