VAE 511: Livestock Entrepreneurship (1+0)

3 R’s OF CREDIT

• To estimate the rationality of a loan, it is essential to know credit analysis.
• The considerations involved in credit analysis generally fall into three groups:
  • Returns
  • Repayment capacity
  • Risk bearing ability
• These are popularly known as the three R’s of credit.

Returns

• This R of credit has great significance for the creditor as well as the borrower.
• It requires that both the borrower and the financier should be satisfied with the returns from credit.
• The problem of determining the profitable use of capital is a part of decision making and it involves selection of enterprises, determining the most economically optimum production techniques and determining the size of each enterprise.

Repayment capacity

• It is the test of economic feasibility.
• It determines the amount the farmer will be able to spare for repayment of loan.
• It is generally acceptable that if an investment is profitable, the loan can be repaid without any difficulty.

Risk bearing ability

• Risk bearing ability implies the capacity to cope with an unexpected low income and unpredictable expenses and losses due to the vagaries of nature and other hazards such as diseases and price fluctuations.