Rural Credit: Access, Use and Repayment

Rural credit encompasses the range of financial services offered in rural areas by institutional and non-institutional agencies to the people of all income levels. In India the institutionalization of rural credit started with the enactment of the first Cooperative Credit Societies Act in 1904. From then cooperative banks served as important providers of financial services but they have often faced greater crises of financial instability. The nationalization of 14 major commercial banks and the formation of RRBs and NABARD have developed multi-agency approach to rural credit. Now all these institutional agencies have covered cent per cent of the Indian villages and significantly contributed for white revolution and green revolution. However, certain segments of rural population are always away from the services of institutional agencies. Agriculture and allied sector is more capital and credit intensive. The World Bank-NCAER Rural Financial Access Survey of 2003 clearly confirmed that access to the formal financial institutions remained severely constrained in rural areas, particularly for the poorest of the households, with informal lending still remaining substantial. If access to credit is made easy when it is required, half of the problems in the rural credit market could be solved. But the problems pertaining to the access remains complex and deeper than what is generally perceived and understood. The present study is an attempt to study the access, use and repayment of institutional credit by borrowers in rural India. The study unearthed certain micro level realities and confirmed that the institutional credit available could not mitigate the problem of rural indebtedness in the study area. The study concluded that the proper way-out is not only enhancing the quantum of credit but also making the institutional agencies more borrowers’ friendly. In this direction a business partnership model is suggested.