Persistence of Informal Credit in Rural India: Evidence from ‘All-India Debt and Investment Survey’ and Beyond

Pradhan, Narayan (2013): Persistence of Informal Credit in Rural India: Evidence from ‘All-India Debt and Investment Survey’ and Beyond. Published in: RBI Working Paper Series No. WPS (DEPR): 05/2013 (2013)

Abstract

Rural credit markets in India is characterised by the coexistence of both formal and informal sources of finance and the market is fragmented. To discuss the informal rural credit issue and to maintain consistency with All India Debt and Investment Survey (AIDIS) data, this paper treats credit supplied by non-institutional agencies as informal while institutional agencies as formal sources of credit. It is assessed that the share of rural informal credit in total outstanding debt has been certainly decreasing over the period from 1950 to 2002 with various financial inclusion initiatives of the Reserve Bank and legislations of the various state governments to regulate moneylenders. However, about two-fifth of the rural households’ dependence on informal credit, even today, indicates further scope for financial inclusion in rural areas. This augurs well for new financial sector initiatives in the form of prompt and innovative policy responses to prioritise financial inclusion, financial education as well as financial literacy.

• Item Type: MPRA Paper
• Language: English
• Keywords: Rural credit, Informal finance, Microfinance, Non-banking financial institutions
• Subjects: Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture

References

1. Ghate, P. B. (1988), ‘Informal Credit Markets in Asian Developing Countries’, Asian Development Review, 6 (1): 64-85.

2. Ghate, P. B. (1992), Informal Finance: Some Findings from Asia, Asian Development Bank: Oxford University Press.