Loan against Warehouse Receipts (LAWHR) is a financial instrument that allows farmers and agricultural traders to obtain loans by pledging their stored agricultural commodities as collateral. The warehouse receipt serves as proof of ownership and quantity of the stored commodities.
How it works:
- Storage: The farmer stores his agricultural produce in a registered warehouse.
- Warehouse Receipt: The warehouse issues a warehouse receipt, which certifies the quantity and quality of the stored commodities.
- Loan Application: The farmer approaches a bank or financial institution for a loan, pledging the warehouse receipt as collateral.
- Loan Approval: The lender assesses the value of the stored commodity and approves the loan.
- Disbursement: The loan amount is disbursed to the farmer.
- Repayment: The farmer repays the loan along with interest, either by selling the commodity or by extending the loan tenure.
Benefits of LAWHR:
- Better access to credit: Farmers can access loans without selling their produce immediately.
- Better price realization: Farmers can wait for a better market price before selling their produce.
- Risk mitigation: Protects farmers from price fluctuations and market risks.
- Reduction in post-harvest losses: Promotes proper storage of agricultural produce.
