ICAR AICE-JRF/SRF Agricultural Finance, Credit & Rural Banking: practice questions

1 · Role of credit in agriculture · medium

A trader lends to a farmer on condition that the farmer sells his crop to that trader. This arrangement is best described as

1. Priority-sector lending
2. A self-help group loan
3. Supervised credit
4. An interlinked credit transaction

2 · History of agricultural finance · medium

The cheap-credit critique of Adams, Graham and Von Pischke (1984) helped bring about which shift in rural finance policy from the 1980s?

1. Wider use of loan waivers and lower controlled interest rates for all farmers
2. A financial-systems approach: savings, cost-covering rates
3. Nationalisation of private rural banks to steer credit to small farmers
4. Replacing all rural lending with crop insurance and direct cash grants

3 · Bank nationalisation · medium

Household debt surveys in countries that expanded state-directed rural banking typically show what change in the composition of rural household debt?

1. The disappearance of cooperative lending
2. A substantial fall in the share of moneylenders and a rise in the share of institutional sources
3. A rise in moneylenders' share to over 90 per cent as cooperative and bank lending to villages collapsed
4. No change in the composition of lenders

4 · Multi-agency approach and the credit gap · hard

Over recent decades, which trend in the composition of institutional agricultural credit has been reported in many countries?

1. The share of cooperatives has declined while the share of commercial banks has risen
2. Commercial banks' share has steadily fallen
3. The share of cooperatives has risen to dominate lending while commercial banks have withdrawn
4. Local rural banks have become the largest lenders everywhere

5 · Multi-agency approach and the credit gap · hard

Which remedy targets the credit gap faced specifically by tenant farmers without land titles?

1. Raising the collateral requirement on crop loans
2. Lowering scales of finance
3. Reducing branch presence in rural areas
4. Financing them through joint liability groups

6 · Priority-sector lending · hard

Which is a standard criticism of mandated priority-sector lending?

1. It removes all credit risk from agricultural lending, so banks become careless and stop appraising farm loans at all
2. It generally forbids banks from lending to large industry
3. Lenders may book loans they cannot monitor well, and lending may bunch near the year-end to meet targets
4. It prevents rural banks from lending to farmers

7 · Microfinance, self-help and savings groups, and MFIs · hard

In the economics of group lending, joint liability improves repayment mainly because

1. Group members pool land titles as collateral
2. The government guarantees every group loan
3. Groups are charged lower interest than individuals by law, so the smaller instalments are always much easier to repay on time
4. Members screen out risky peers and monitor and pressure each other, substituting local information for collateral

8 · Central banks and development finance institutions · hard

Which statement about agricultural credit in the United States is correct?

1. The Farm Credit Administration lends directly to farmers
2. The USDA Farm Service Agency makes direct and guaranteed loans to farmers unable to get credit elsewhere, as a lender of last resort
3. All farm lending is done by the Federal Agricultural Mortgage Corporation, which holds a legal monopoly over both land and crop credit
4. Commercial banks are prohibited from lending to agriculture

9 · Microfinance, self-help and savings groups, and MFIs · hard

Indonesia's Bank Rakyat Indonesia village units are often cited in rural-finance literature because they

1. Became a commercially priced, savings-mobilising microbanking network that was both broad in reach and financially viable
2. Lent to farmers only at zero interest, financed by government grants, and so were widely copied as a model of cheap rural credit
3. Were closed after repeated loan waivers
4. Operated only through moneylenders

10 · Priority-sector lending · hard

Which country's agricultural credit policy is an example of a mandate requiring banks to set aside a share of loanable funds for agriculture?

1. Kenya, through village savings and loan associations
2. The Netherlands, through cooperative banks
3. The United States, through the Farm Credit System, which obliges every commercial bank to lend a fixed share to farmers
4. The Philippines, which requires banks to set aside a share of loanable funds for agriculture and agrarian reform