Question:
Read the given case and choose the correct option:
Swapna, a small farmer grows groundnut on her three acres of land. She takes a loan from the moneylender to meet the expenses of cultivation but midway due to flood, crop fails and her debt increased. Again she has to take loan to manage crops.
Suggest Swapna, which of the following sources of loan would be suitable for her.
Read the given case and choose the correct option:
Swapna, a small farmer grows groundnut on her three acres of land. She takes a loan from the moneylender to meet the expenses of cultivation but midway due to flood, crop fails and her debt increased. Again she has to take loan to manage crops.
Suggest Swapna, which of the following sources of loan would be suitable for her.
Swapna, a small farmer grows groundnut on her three acres of land. She takes a loan from the moneylender to meet the expenses of cultivation but midway due to flood, crop fails and her debt increased. Again she has to take loan to manage crops.
Suggest Swapna, which of the following sources of loan would be suitable for her.
Show Hint
Sort the four options into supervised and unsupervised lenders. Swapna is already caught in a debt trap, so she needs the source that charges the lowest interest and is answerable to the Reserve Bank of India.
Updated On: Sep 15, 2026
- Friends
- Relatives
- Moneylenders
- Banks
Show Solution
Verified By Collegedunia
The Correct Option is D
Solution and Explanation
Concept:
Step 1: Understand what has gone wrong in the case.
Swapna borrowed from a moneylender, the crop failed because of flood, and her debt increased. She now has to borrow again to manage the next crop. This is exactly the situation described as a debt trap.
Step 2: See why option (C) would make it worse.
Moneylenders charge a much higher rate of interest than banks, and there is no one to stop them. Borrowing again from the same source would raise her repayment further and deepen the trap.
Step 3: See why options (A) and (B) are not a solution.
Friends and relatives are also informal sources. The amounts they can lend are small and uncertain, there is no written agreement, and the terms depend entirely on the relationship. They cannot finance a farming season year after year.
Step 4: See why banks are the right advice.
Banks are a formal source. They charge a much lower rate of interest, their lending is supervised by the Reserve Bank of India, the terms are written down, and repayment schedules can be arranged to suit a crop cycle.
Cheap credit of this kind is what allows a small farmer to invest and repay out of the harvest instead of sinking further into debt.
Final Answer: (D) Banks
- Sources of credit are of two kinds. Formal sources such as banks and cooperatives are supervised by the Reserve Bank of India, while informal sources such as moneylenders, traders, relatives and friends are supervised by nobody.
- The case describes a farmer already sliding into a debt trap, so the answer must be the source that can stop that slide.
Step 1: Understand what has gone wrong in the case.
Swapna borrowed from a moneylender, the crop failed because of flood, and her debt increased. She now has to borrow again to manage the next crop. This is exactly the situation described as a debt trap.
Step 2: See why option (C) would make it worse.
Moneylenders charge a much higher rate of interest than banks, and there is no one to stop them. Borrowing again from the same source would raise her repayment further and deepen the trap.
Step 3: See why options (A) and (B) are not a solution.
Friends and relatives are also informal sources. The amounts they can lend are small and uncertain, there is no written agreement, and the terms depend entirely on the relationship. They cannot finance a farming season year after year.
Step 4: See why banks are the right advice.
Banks are a formal source. They charge a much lower rate of interest, their lending is supervised by the Reserve Bank of India, the terms are written down, and repayment schedules can be arranged to suit a crop cycle.
Cheap credit of this kind is what allows a small farmer to invest and repay out of the harvest instead of sinking further into debt.
Final Answer: (D) Banks
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