Interlocked credit
Also called: Credit tied to crop sale, trader credit · Topic: Rural Credit, Microfinance and Financial Inclusion · NCERT: Class 10, Ch 3 "Money and Credit"
Meaning
Interlocked credit is credit given on the condition that the borrower sells their crop to the lender. A trader supplies inputs to a farmer on credit, and the farmer promises to sell the crop to that trader. At harvest, when prices are low, the trader buys the crop cheaply. He sells it later at a higher price. The credit market and the produce market are "locked" together, so the farmer loses on both the loan and the sale. This is a root cause of distress sales, where farmers sell at low prices because they have no choice.
Example
In Sonpur village, Shyamal first borrows from a moneylender at 5% a month. He then borrows from a trader at 3% a month, promising to sell his crop to the trader. The trader gains twice: once through interest and again through the low price he pays for the crop (Class 10, Money and Credit).
Don't confuse with
- Labour-tied credit: here the loan is repaid by working for the lender, not by selling the crop to them.