Farm credit guidelines for small-scale farmers



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Content: Nearly all small-scale farmers borrow from time to time. It’s very important that you make good on all aspects of your promise to return what you borrow. To do this takes good farm planning. Lenders are more willing to lend you money if you show them good farm records. You must be sure the person you borrow from is honest, and make sure you fully understand any paper that you sign.

If you’re like nearly all other farmers, the time comes when there are some things that you really need. For example, you may need a new hoe or other farming tool or machine, or you must buy some seeds or other things related to your crops. Or you may need to buy another animal or more poultry.

Let’s say you really need one of those, but you don’t have enough money to buy it. You might be able to trade something you have with some other person for the things you need. Or you might be able to borrow what you need from a friend. Sooner or later, however, you’ll have to return it, so that may or may not be a solution to your problem.

Sometimes, when people don’t have enough money to buy something they need, they borrow the money. They might borrow it from a friend or from a bank or some other money-lending agency or individual. Or they may buy seed from a dealer and sign a paper saying they’ll pay for it after they harvest their crop.

For the next few minutes, let’s think about borrowing, and some of the things that a borrower should keep in mind.

First, if you borrow money or anything else, always be sure that both you and the lender have agreed and understand everything about the agreement. That includes when you will return what you have borrowed and anything else connected with the arrangement. For instance, if you borrow a hoe, you might agree to fit it with a new handle before you return it. Or if it’s money you borrow, you should agree on when you will return it. Also, you should know if you’ll be paying something to use the money; that is, will you be paying interest on the money? You must know too, how much money altogether you’ll have to pay in interest as well as the amount you have to pay back that you borrow.

There’s one very important thing about borrowing anything, whether it’s money or something else. You should always return it on time, and keep any promises you made at the time you borrowed it. Borrowers who do that usually don’t have any problem if they want to borrow again another time.

People who borrow money, or as we say, “get a loan,” and who always do what they promised, establish what is known as “a good credit rating.” And anyone with a good credit rating can nearly always borrow money when they really need it.

Now you must have noticed, from what I’ve just said, how important it is for the borrower to always keep his or her promise.

Let’s think about that for a moment.

When you borrow money, how can you know that you’ll be able to repay it on time? There’s only one way you can do this. Before you borrow the money, you must consider everything connected with what you need the money for, and have a plan that you know you can carry out for repaying the money. A responsible borrower never borrows money without doing this.

Let’s say you’ve decided to increase the productivity of the land you’re farming by buying an irrigation pump. Here are two different ways you might approach your banker:

a) You might find out how much the pump will cost and go to the banker and request a loan for that much money; or

b) You might get a picture from the person selling the pump along with the price written beside the picture. You might also have decided how much pipe or hose you will need to connect the pump to your water source and to deliver water from the pump into your crops. You also might figure out how much your yields will increase after you install the irrigation system and so on. You might take all that information to the banker when you request the loan.

Which of those two approaches do you think is more likely to be successful for getting the loan? Certainly the second, because it shows the banker that you’ve carefully planned what you will do and what the total cost will be, before you apply for the loan.

Now there’s something else you can do to establish “a good credit rating”:

Keep good accurate farm records of what you sell and how much money you receive for it. Also, keep records of what you buy and how much it cost. Another thing: keep a record of everything you own, including livestock and poultry, farm tools and equipment, and what they are worth. And be sure to keep a good record of every time you borrowed, how much money, and when you returned it. If you regularly write down important things like that in a good farm record book and have it with you when you apply for a loan, the banker will be much more interested in lending you money. It shows that you have good records on which to base your decisions about borrowing money.

Of course when you want to borrow money for a good purpose, there may be more than one source in your area. Before you borrow, it’s a good idea to find out about each one. It’s possible that you can make better arrangements with one than with another. But be sure that the person you deal with is honest and that you fully understand all of the conditions of the loan you arrange. Don’t ever sign your name to any paper unless you know what everything in it means. And don’t sign it unless you’re sure you’ll be able to do whatever you are required to do that’s on that paper. Too many farmers in the past have signed their names to papers they didn’t understand. Because of this, some dishonest people have been able to force these farmers to give them something that they were not entitled to take.

Every farmer who sells farm produce is a business person. If you follow some of the business principles I’ve told you about today, they’ll help you to become more successful in your farming business.


1. Not all small-scale farmers in developing countries seek out and use farm credit. As time goes on, however, and more of them develop their farming enterprises, more and more of them will require farm credit. The information in this item is aimed at acquainting these progressive small-scale farmers with some important aspects of the subject that they should have in their mind before seeking farm credit.

2. In this item, the value of keeping farm records is emphasized. You might wish to use information in three other DCFRN items on this subject in association with this item. They are:

Good farm records: a key to higher profits (Part 1 – Getting started), Package 11, Item 1

Good farm records: a key to higher profits (Part 2 – A diary), Package 11, Item 2

Good farm records: a key to higher profits (Part 3 – Records help in cropping decisions), Package 12, Item 1

Linda Bolinao – model farmer in the Philippines – (Part B – A Useful Set of Farm Records) –

Package 19 (this package) Item 6.