Explaining Access to Credit by Rural Households: Results based on a Study of Several States in India
Abstract
Against the backdrop of evolution of rural credit system in India as well as its observed failure
to be inclusive in character, this paper makes use of a fairly large data set of the Center for
Mangement in Agriculture in Indian Institute of Management, Ahmedabad to try to explain
several hitherto unaddressed issues – why certain rural households fail to have any access to
credit from any source, and especially from the much-publicized and much-pampeered formal
source, and even from the emerging MFIs. Three probit models are used to explain this
phenomenon in terms of village and household characteristics of the sample households. The
paper highlights the need for strengthening rural infrastructure, which is often found to stand
in complementary relation with credit demand and credit access. Emphasis is also laid on
strengthening of semi-formal souces of credit known as micro-finance, which seem to follow a
market logic rather than strict regulatory approach of formal banking system, and doesn’t
always favor large borrowers and large projects, in spite of apparent economies of scale of such
projects. Familiarity to powerful rural personnel seem to be playing a dubious role in
influencing credit demand and credit access – a matter which needs to be addressed revamping
of development policy administration in the countryside.
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