Micro Borrowing an Amalgam of Structure and Strategy: Evidence from India

Micro borrowing was either an outcome of structure in the credit environment (termed the outreach stream), or a strategic response of the borrowers (termed the sustainability stream). Furthermore, borrower personal effects drove borrowing behaviour. This study draws variables from both the streams of literature and tests them against the amount borrowed and purposes loans are borrowed for. Results show how borrowing behaviour is neither an outcome of pure structure nor pure strategy, but rather, is an interplay of both, and further influenced by personal effects. The survey data (consisting of 839 rural borrower responses, from four districts of erstwhile Andhra Pradesh in South India) was subjected to a rigorous statistical analysis. Results show how a larger number of banks in the villages (a structural constraint), enabled the borrowers to receive larger loans, who defaulted more (a strategic response). Men borrowed larger sums (a personal effect). A similar amalgam of structure, strategy and personal effects drive borrowing behaviour even after controlling for loan purpose and district fixed effects. Yet, when district effects are introduced, amount borrowed is agnostic to personal effects, and is driven purely by structure and strategy. JEL Classifications: C25, C83, G51, Z13