Paper

Rural Credit Delivery in Maharashtra: Experiences with Formal and Informal Lending Institutions

Can the rural credit delivery system be revitalized?
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This paper evaluates problems relating to the accessibility of credit to small and marginal farmers, focusing on the state of Maharashtra in India. The paper examines:

  • The data and methodology of the study;
  • Farmers' access to sources of credit;
  • The relationship between consumption, production and human capital loans;
  • Default rate and transaction costs;
  • Borrowers' working experience with lenders;
  • The processing of loan applications, the shortfall and the interest rates on loans;
  • The role of collateral.

The paper concludes that:

  • New generation lending institutions, such as self-help-groups (SHGs), show a high rate of interest on loan advances;
  • Traditional lending institutions such as cooperatives and banks are deficient in human capital investment and consumption loans;
  • They also exhibit high transaction costs and delay in the delivery of credit;
  • Cooperatives are the dominant force in rural credit markets.

The paper recommends that:

  • There is a need to focus on simplified loaning procedures, balanced sectoral development, sustainability and viability, operational efficiency and small farmer coverage, in order to improve the efficiency of credit delivery in Maharashtra;
  • Formal credit institutions should introduce group responsibility to safe guard the interest of the overall rural community;
  • Cooperatives need to be re-structured and strengthened to meet emerging challenges.

About this Publication

By Kshirsagar, K., Shah, D.
Published