Q1. [3] medium thorough-understanding
How does a cooperative society like Krishak Cooperative manage to offer cheaper credit to its members, even though it lends mainly to small farmers who may lack individual collateral?
Generated by claude-sonnet-4-6 · 2026-06-26 13:25 · grounding rag
Model Answer
Krishak Cooperative manages to offer cheaper credit through a collective collateral mechanism:
- Pooling of deposits: The cooperative's 2,300 farmer members deposit their savings with it, creating a common fund.
- Collective collateral: These pooled deposits are used as collateral to obtain a large loan from a bank at low (formal sector) interest rates.
- On-lending to members: The funds received are then lent to individual members, who may lack personal collateral, at rates far lower than moneylenders or traders charge.
Since the cooperative borrows from the formal sector (bank), its cost of funds is low, and this benefit is passed on to members.
Source: Chapter 3, "Loans from Cooperatives"
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Explanation
- The key concept examiners look for is collective/pooled deposits acting as collateral — this is what allows members who individually have no collateral to still access formal-rate credit.
- Mention all three steps: members pool savings → cooperative uses deposits as collateral to get bank loan → lends to members cheaply.
- Don't confuse this with SHGs; Krishak is specifically a cooperative society borrowing from a bank using member deposits as collateral.
- 3 marks = 3 clear points. Structure as a brief list or short paragraph with distinct points.