It is generally assumed that if an

investment is profitable, the loan can be

repaid without any difficulty.
To test the economic feasibility, loans are
classified into:
Self-liquidating loans.
Partially liquidating or Non-liquidating
loans.
Self-liquidating Loans.
 These loans usually will be realised by
the borrower back by the borrower in
the same year of investment.
 The services of these loans are used
up in the same year or season of its
investment.
 In other words it gets depreciated
completely in the same year.
 Hence, the production process after such
investments should be able to generate
income to cover the original cost of
cultivation and the additional investment
made through raising credit.
 This self generation of additional income is
what is called self-liquidation.
 Repayment Capacity is estimated as
F:\credit\Credit analysis.doc
 Partially Liquidating or
Non-liquidating Loans
These are the loans, where the
resources acquired are not directly
consumed or consumed over a number
of years.
As the total investment is not
completely used up in the same year of
investment nor get depreciated for the
same crop season, even the returns are
also expected over a number of years.
 Thus, the investment by taking such
loans may not be in a position to pay in
the same year.
 In other words, the additional returns
generated out of the additional
investment will not be sufficient to
cover the total investment.
 Hence, the liquidation of additional
investment is partial and spread over a
number of years.
 The repayment capacity is estimated as
F:\credit\R C Non-liquidating loan.doc
 Measures to strengthen Repayment
Capacity
 Increasing net income by proper
organisation and operation of the
farm business.
 Adopting the proper technology for
increasing production and reducing
the farm expenses.
 Removing the imbalances in resource
availability.
 Scheduling the loan repayment plans
coinciding with the flow of income.
 Strengthening net worth of the farm
business.
 Adopting the risk management
strategies like crop insurance / cattle
insurance.
Types of Risks in Agriculture
1. Production risks
2. Technological risks
3. Risk caused by sickness of the family
members
4. Institutional risks
5. Weather uncertainty
6. Price uncertainty
7. Risks caused by illiteracy and
ignorance
Measures to Strengthen RBA
1. Building up of the owner’s equity as
owner’s equity is back bone of RABA
2. Developing moral character of the
borrower.
3. Reducing farm and family expenditure.
4. Taking stable and reliable enterprises.
5. Taking up crop and other insurances.
6. Diversifying the farm production.
7. Increasing the ability to borrow during
good and bad periods.
Five C’s of Credit

 Character.
 Capacity.
 Capital.
 Condition.
 Commonsense.