Chit Funds and Informal Credit in India
Commission Agents and Farm Credit
In farm markets, commission agents lend to farmers and are repaid from crop sales, tying credit to marketing.
In many mandis, credit and selling come together.
The link
Commission agents, or arhatiyas, advance cash to farmers for seeds, fertiliser and household needs.
Repayment
The farmer sells the crop through the same agent, who deducts the loan and a commission.
Benefits
Credit is quick and flexible, and agents know their clients.
Concerns
Farmers may be tied to one agent and get lower prices.
Tied selling
A farmer who took an advance must sell his wheat through the same agent, even if better offers exist.
Ignoring the hidden cost
The price the farmer gets may be lower than the market.
Key takeaways
- Agents advance credit to farmers.
- Loans are repaid from sales.
- Credit is fast and flexible.
- Farmers may lose bargaining power.
No recording for this one yet - EconReader can read it aloud for you.