Credit Rationing in Rural Credit Markets of India

Kausik Chaudhuri (1) , Mary Cherical (2)

1 University of Leeds
2 IGIDR

This paper analyses the prevalent situation of the formal financial institutions in rural India using data from National Sample Survey 54th Round (January-June, 1998). We use sample selectivity model to examine the sanction of the loan by the financial institutions as a two-stage process. We model the choice of the household's credit requirement using an unordered choice model, namely, a multinomial logit model. Our results reveal that the rural households are considerably credit constrained. The households who do not have an account in a financial institution have a lower chance of obtaining the loan and households who are credit constrained have relatively lower land holding and they do not possess livestock. Households who borrow for non-farm purpose exhibit a lower chance of obtaining credit compared to those households who borrow for farm business. Village level infrastructure plays an important role in determining the credit rationing behaviour in rural-India.

Mots clés: Social Sciences & Humanities

Domaines: Économie et finance quantitative [q-fin]

Kausik Chaudhuri, Mary Cherical. Credit Rationing in Rural Credit Markets of India. Applied Economics, 2011, pp.1. ⟨10.1080/00036846.2010.524627⟩. ⟨hal-00675394⟩