From Cheap Credit to Easy Money: How to Undermine Rural Finance and Development

Takes an in depth look at the financial landscape in India, illustrated through case studies at the village level.

Assesses effects on pre-existing financial arrangements after village bank financing becomes available. Data collected from formal and informal lenders is analysed as follows:

• Lending activities of an individual unlicensed lender, a shopkeeper, and the village bank are compared;
• Lending records of the informal lender are examined in the period 1982- 83 and then six years after the bank was established in the village (1988-89);
• Lending records of financial intermediaries are also examined over the course of a full year 1988-89;
• Role of informal mutual finance is examined.

Conclusions drawn from this examination include:

• Informal finance does not decline in volume but instead grows after establishment of the village bank;
• There is also growth in the pawnbroking business and mutual finance groups;
• Pawnbroking businesses offer a viable, dependable, accessible and private system of loan provision, as opposed to the bank;
• Linkages between informal financial intermediaries and between informal and formal financial intermediaries are apparent;
• Separate types of credit are advanced by the same financial agent.

Considers implications of these results for macro-level surveys on the features of financial landscapes.