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Credit rationing in rural credit markets of India

Listed author(s):
  • Kausik Chaudhuri
  • Mary M. Cherical

This article analyses the prevalent situation of the formal Financial Institutions (FIs) in rural India using data from National Sample Survey 54th Round (January--June, 1998). We use sample selectivity model to examine the sanction of the loan by the FIs as a two-stage process. We model the choice of the household's credit requirement using an unordered choice model, namely, a multinomial logit model. Our results reveal that the rural households are considerably credit constrained. The households who do not have an account in a FI have a lower chance of obtaining the loan and households who are credit constrained have relatively lower land holding and they do not possess livestock. Households who borrow for nonfarm purpose exhibit a lower chance of obtaining credit compared to those households who borrow for farm business. Village level infrastructure plays an important role in determining the credit rationing behaviour in rural India.

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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 44 (2012)
Issue (Month): 7 (March)
Pages: 803-812

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Handle: RePEc:taf:applec:44:y:2012:i:7:p:803-812
DOI: 10.1080/00036846.2010.524627
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