Cover Image
close this bookBetter Farming Series 14 - Farming with Animal Power (FAO - INADES, 1977, 57 p.)
close this folderIncome from animal power
close this folderWhat animal power costs
View the document(introduction...)
View the documentBuying animals and tools
View the documentAmortization
View the documentInterest
View the documentThe animals' food
View the documentUpkeep and repair of tools

Interest

Gambara buys

a plough

8 000 francs

two oxen

32 000 francs

Gambara spends

40 000 francs

But Gambara hasn't got 40 000 francs.

So he asks a friend or a bank to lend him the money.

His friend, or a bank that has 40 000 francs, could use the money to buy a shop and do business.

The 40 000 francs would bring in money.

This is why the friend or the bank that lends you money asks you to pay back more.

If the bank lends you 100 francs for one year, and asks you to pay back 105 francs at the end of the year, and say that the bank asks for 5 percent (5%) interest. The extra 5 francs are the price you must pay for the loan of 100 francs for one year.

For a farmer who is lent 40 000 francs, interest at 5% a year works out as follows:
40 000 francs x 5/100 = 2 000 francs interest each year.

Interest is the money a farmer must pay each year for the use of money lent to him

Each year Gambara must put aside in order to pay for his oxen and his plough:

Amortization

3 600 francs

Interest

2 000 francs

Total
_5 600 francs

To replace his animals and his plough, Gambara puts aside each year 5 600 francs.