Agriculture assist loan approval system

ABSTARCT :

This paper assesses the problems of financing Central and Eastern European agriculture during the present transitionary period and what the role of government is in this process. Initially the paper looks at why credit markets work imperfectly, even in well developed market economies, focusing on the problems related to asymmetric information, adverse selection, moral hazard, credit rationing, the choice of optimal debt instrument and why initial wealth matters. It shows why these and related problems may cause transaction costs to high enough so that credit rationing and high interest rates are rational and efficient responses by lenders to the imperfect information problems of the agricultural sector. Then a series of specific, transition-related issues are discussed which have worsened these problems within the Central and Eastern European agricultural sector. This leads to a discussion of the potential roles for governments in solving these issues, specifically the use of credit subsidies, loan guarantees and specialised agricultural lending institutions. Finally, the paper reviews the actual government intervention which have occurred within the Central and Eastern European countries.

EXISTING SYSTEM :

? The high risks and uncertainties in CEE agriculture, existing commercial banks with a diversified portfolio may be more efficient financial institutions for rural credit. ? However, the previous analysis suggests that political and economic forces have induced the CEE governments to select and implement policies during transition that are similar to the ones that exist in Western agricultural credit markets. ? Credit and risk markets in the most well-developed market economies work imperfectly, largely due to imperfect and costly information. ? Problems of imperfect information and incomplete risk markets are particularly important in agriculture.

DISADVANTAGE :

? The problems in the credit market for agriculture stem from both demand and supply forces. ? The majority of both private farmers and large scale farm managers indicated that problem in accessing credit were mainly due to- “high interest rates” in all these countries. ? There is also the long-term problem of ensuring adequate funds to facilitate structural adjustment and to enable farmers to apply effective technologies. ? In this paper we assess the problems of financing CEE agriculture during the transition and what the role of government is in this process.

PROPOSED SYSTEM :

• Farmers in some regions or in some time periods may have only limited or no access to credit, even if some of them might propose good investments to the financial institutions. • If the borrower does not have enough incentives to manage as well as possible the capital resources for particular purposes, or may change the purpose for which a loan is granted, this may lead to an increase in the risk of the borrower's ability to repay the loan. • These are respectively called the moral hazards of the choice of effort and choice of purpose. • The purpose of this fund is to support the agricultural sector during the transition period, mainly for oversupplied products.

ADVANTAGE :

? The most important advantages from the creation of specialised agricultural credit institutions are lower transaction, monitoring and verification costs through greater specialist knowledge of relevant agricultural activities. ? The access to credit is rationed, thus the credit allocation process is no longer efficient within the market. ? These various institutions have many different characteristics affecting their efficiency, many of which are specific to there individual situation. ? Credit was provided through the central bank to farmers for these investments, typically with a negative real interest rate, not based on merit and often used as a way to support unsuccessful enterprises.