Question

Identify 3 R's of credit.
(A) Referral
(B) Returns
(C) Reach
(D) Repaying capacity (E) Risk bearing ability. Choose the correct answer from the options given below.

• A. (B), (D) and (E) only.
• B. (A), (B) and (E) only.
• C. (B), (C) and (D) only.
• D. (A), (B), (C) and (D) only.

Hint:

Remember the financial meaning of the 3 R's:
- Returns: Will the investment make a profit?
- Repaying Capacity: Can the borrower pay the loan back on time?
- Risk Bearing Ability: Can the borrower survive a bad year?

Answer 1

The Correct Option is A

Step 1: Understanding the Concept:
When financial institutions evaluate loan applications from agricultural or aquaculture enterprises, they use standardized guidelines to assess the viability and safety of the credit.
These guidelines are known as the "Three R's of Credit."

Step 2: Detailed Explanation:
The Three R's of Credit are:
1. Returns (B):
This evaluates whether the proposed enterprise will generate enough income to justify the investment.
The lender assesses the expected yields, costs, and profits to determine if the loan will generate a positive net return.
2. Repaying Capacity (D):
This measures whether the borrower will generate enough cash flow to repay the loan principal and interest on schedule.
Repaying capacity depends on total family income, living expenses, existing debts, and the timing of crop harvests or fish sales.
3. Risk Bearing Ability (E):
This evaluates the borrower's ability to withstand financial losses if the project faces unexpected challenges, such as crop failure, disease outbreaks, or price drops.
Lenders assess this by looking at the borrower's net worth, savings, and insurance coverage.
The terms "Referral" and "Reach" are not part of this financial evaluation framework.
Therefore, the Three R's of credit consist of Returns, Repaying capacity, and Risk-bearing ability (B, D, and E).

Step 3: Final Answer:
The 3 R's of credit are Returns, Repaying capacity, and Risk-bearing ability.
This corresponds to Option 1 ((B), (D), and (E) only).