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Willing, but Unable? Insights on Agricultural Borrowing from Rural Tamil Nadu

EPoD IFMR LEAD Policy Brief - April 2016

“Nearly 49 percent of India’s population depends on agriculture as their primary source of livelihood. However, agriculture’s share in GDP has been declining over the years1 . While there has been an impressive growth in agricultural credit flows in the last decade or so, ensuring timely and adequate institutional credit to farmers on the ground remains a challenge for policymakers and financial institutions. This trend is corroborated by the dominance of non-institutional sources, which continue to account for a significant share of borrowings among agricultural households (Mor Committee Report, 2013). Thus, a more refined understanding of farmer’s credit requirements across agricultural seasons and factors that explain the dominance of informal sources is vital.

In an ongoing IFMR LEAD- Harvard- Duke University study on access to finance in rural areas of Tamil Nadu, researchers surveyed 353 farmers during the Samba/Thaladi2 cropping season of 2014-2015 (September to March), to gain insight into their usage of financial services. The study undertakes a long-term impact evaluation of the Kshetriya Gramin Financial Services (KGFS) portfolio- a financial services delivery model promoted by IFMR Trust with an aim to ensure that every individual and enterprise has complete access to financial services. While a detailed analysis of the data from the study is forthcoming, this brief captures insights on the access and usage of financial services among farmers in the sample.”

Key insights

“Seasonality: Majority of borrowings at the beginning of the farming season are from formal sources (72 percent of volume). This drops to 35 percent during the course of the season.

Information and Access: Limited information about sources of formal credit, as well as poor access to them are still major constraints for farmers.

Convenience is Key: The quick approval of loans from informal sources, coupled with the ease of access to these loans work in favour of informal lenders.”

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