Who Has Access to Formal Credit in Rural India? Evidence from Four Villages
भर
This field report examines access to formal credit in rural India, analysing household debt patterns across four villages – Warwat Khanderao and Nimshirgaon in Maharashtra, and 25 F Gulabewala and Rewasi in Rajasthan. It was written by Madhura Swaminathan from the Indian Statistical Institute, Kolkata, and was published in a 2012 issue of the Review of Agrarian Studies.
The survey for the report collected comprehensive data on outstanding loans, interest rates, sources of credit, and purposes of borrowing. Lenders were classified as formal (commercial banks, regional rural banks, cooperative societies, urban banks, non-bank financial companies) or informal (traders, moneylenders, landlords, self-help groups). The study focused on differences in access to formal credit across caste and socio-economic class to understand patterns of financial inclusion.
The research also traces three phases of rural credit policy since 1969: “social and development banking” following bank nationalisations (1969-mid 1970s), direction of credit toward “weaker sections” during the phase of “consolidation of the institutional infrastructure of rural banking” (late 1970s-1980s), and the period of liberalisation wherein bank profitability was emphasised over redistributive objectives (1991 onwards).
The 14-page report shows that despite financial inclusion becoming a declared policy objective in 2005, there were persistent inequalities in formal credit access even in 2012.
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The formal sector accounted for widely varying shares of total outstanding debt across villages – 84 per cent in Warwat Khanderao, 93 per cent in Nimshirgaon, 73 per cent in 25 F Gulabewala, and 56 per cent in Rewasi.
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These aggregate figures masked severe disparities between different social groups. In Rajasthan’s villages, caste determined credit access dramatically. While 80 per cent of Jat Sikh household debt in Gulabewala came from formal sources, only 35 per cent of Scheduled Caste (SC) household debt was from formal lenders. In Rewasi, the gap was even wider – 78 per cent among Jats compared to 10 per cent among SC households.
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Manual workers faced significant exclusion from formal credit in Rajasthan. In Gulabewala, where manual worker households made up 56 per cent of the population, only 36 per cent of outstanding debt in these households was from the formal sector. In Rewasi, hired workers (18 per cent of total households) sourced a mere five per cent of their credit from formal sources.
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Landlords and rural elites across all villages obtained a significant share of their credit from formal institutions – 100 per cent in both Warwat Khanderao and Nimshirgaon, 77 per cent in Gulabewala, and 88 per cent in Rewasi.
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The scale of borrowing varied dramatically by class, rather than by caste, in Maharashtra. In Warwat Khanderao, landlords had average outstanding debt of Rs. 592,840, that is, 77 times that of manual worker households (Rs 7,630).
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Access to formal credit across groups was most inclusive in Nimshirgaon, which has a history of cooperative credit. Even among SCs, Muslims, and manual workers, around 80 per cent of outstanding debt was from formal sources in this village. However, manual labour households borrowed largely from urban cooperative banks and pat sansthas, which were newer and more weakly regulated institutions.
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The report found that informal credit sources continue to be prevalent across all surveyed villages despite the expansion of formal credit.
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Only the wealthiest households avoid borrowing from informal sources. This is concerning as informal lenders charge significantly higher rates than banks and cooperatives. Giving an example, the report states that while interest on a loan from a cooperative society ranged between 7-12 per cent per annum, traders never charged less than 24 per cent a year.
Focus and Factoids by Parijat Lal.
वस्तुस्थिती
लेखक
Madhura Swaminathan
स्वामित्व हक्क
Review of Agrarian Studies
प्रकाशनाची तारीख
2012