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Segmentation, Collateral Undervaluation, and the Rate of Interest in Agrarian Credit Markets: Some Evidence from Two Villages in South India

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  • Swaminathan, Madhura

Abstract

This paper examines certain issues pertaining to the structure of agrarian credit markets in developing countries using empirical evidence on credit transactions from two villages in south India. First, the bases for the segmentation between formal and informal sectors of the credit market are identified as being: (1) the type of collateral offered on credit contracts, and (2) the purpose for which credit is taken. Secondly, the paper shows the occurrence of a systematic association between rates of interest and types of collateral. The evidence supports the hypothesis that lower marketability of collateral security, and hence higher undervaluation, increases the rate of interest charged on a loan. Thirdly, the evidence shows an inverse relationship between the value of land owned by a borrower and the rate of interest on a credit contract. Copyright 1991 by Oxford University Press.

Suggested Citation

  • Swaminathan, Madhura, 1991. "Segmentation, Collateral Undervaluation, and the Rate of Interest in Agrarian Credit Markets: Some Evidence from Two Villages in South India," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 15(2), pages 161-178, June.
    • Handle: RePEc:oup:cambje:v:15:y:1991:i:2:p:161-78
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    Cited by:

    1. Sundaram-Stukel, Reka, 2003. "Mobility in Rural Credit Markets: A Honduran Case Study," 2003 Annual meeting, July 27-30, Montreal, Canada 22081, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. repec:ilo:ilowps:408917 is not listed on IDEAS
    3. Venkatesh, P. & Nithyashree, M.L., 2014. "Institutional Changes in Delivery of Agricultural Inputs and Services to Farm Households in India," Agricultural Economics Research Review, Agricultural Economics Research Association (India), vol. 27(Conferenc).
    4. Shehla Amjad & SAF Hasnu, 2007. "Smallholders’ Access to Rural Credit: Evidence from Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 12(2), pages 1-25, Jul-Dec.
    5. Sudha Narayanan & Judhajit Chakraborty, 2019. "Land as collateral in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2019-006, Indira Gandhi Institute of Development Research, Mumbai, India.
    6. Supriya Garikipati & Isabelle Agier & Isabelle Guérin & Ariane Szafarz, 2017. "The Cost of Empowerment: Multiple Sources of Women’s Debt in Rural India," Journal of Development Studies, Taylor & Francis Journals, vol. 53(5), pages 700-722, May.
    7. Anita Gill, 2006. "Interlinked Agrarian Credit Markets in a Developing Economy: A Case Study of Indian Punjab," Working Papers id:760, eSocialSciences.
    8. Balkenhol, Bernd. & Schütte, Haje, 2001. "Collateral, collateral law and collateral substitutes," ILO Working Papers 994089173402676, International Labour Organization.
    9. Augendra Bhukuth & Jérôme Ballet & Katia Radja, 2018. "An Analysis of Social Proximity and Interest Rate in Rural South India," Post-Print hal-01877007, HAL.
    10. Ta Nhat Linh & Hoang Thanh Long & Le Van Chi & Le Thanh Tam & Philippe Lebailly, 2019. "Access to Rural Credit Markets in Developing Countries, the Case of Vietnam: A Literature Review," Sustainability, MDPI, vol. 11(5), pages 1-18, March.
    11. Shami, Mahvish, 2012. "The Impact of Connectivity on Market Interlinkages: Evidence from Rural Punjab," World Development, Elsevier, vol. 40(5), pages 999-1012.
    12. Barham, Bradford L. & Boucher, Stephen & Carter, Michael R., 1996. "Credit constraints, credit unions, and small-scale producers in Guatemala," World Development, Elsevier, vol. 24(5), pages 793-806, May.
    13. Duranton,Gilles & Ghani,Syed Ejaz & Grover,Arti Goswami & Kerr,William Robert & Duranton,Gilles & Ghani,Syed Ejaz & Goswami,Arti Grover & Kerr,William Robert, 2015. "Effects of land misallocation on capital allocations in India," Policy Research Working Paper Series 7451, The World Bank.

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