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Credit Rationing In Rural India

  • Ranjula Bali Swain

    ()

    (Department of Economics, Uppsala University)

The view that households are credit rationed by the formal sector, rests on the assumptions that all households have a positive demand for formal credit and it is a cheaper source for borrowing. To empirically verify formal credit rationing three different models are estimated in this paper. The first model is a conventional credit-rationing model. The second model assumes that the probability to borrow from the formal sector is jointly determined by the demand for credit and the decision of the bank on access. Finally, the third model relaxes both these assumptions and the household chooses between borrowing from the formal or the informal sector. Empirical results using recently collected data from Puri, India, confirm that the access to the formal sector in the rural credit markets is limited and there exists a high demand for credit. This suggests a high degree of effective credit rationing by the formal sector in Puri.

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Article provided by Chung-Ang Unviersity, Department of Economics in its journal Journal Of Economic Development.

Volume (Year): 27 (2002)
Issue (Month): 2 (December)
Pages: 1-20

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Handle: RePEc:jed:journl:v:27:y:2002:i:2:p:1-20
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  1. Bell, Clive, 1990. "Interactions between Institutional and Informal Credit Agencies in Rural India," World Bank Economic Review, World Bank Group, vol. 4(3), pages 297-327, September.
  2. Bliss, C. J. & Stern, N. H., 1982. "Palanpur: The Economy of an Indian Village," OUP Catalogue, Oxford University Press, number 9780198284192.
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