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Credit rationing in rural credit markets of India

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  • Kausik Chaudhuri
  • Mary M. Cherical

Abstract

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.

Suggested Citation

  • Kausik Chaudhuri & Mary M. Cherical, 2012. "Credit rationing in rural credit markets of India," Applied Economics, Taylor & Francis Journals, vol. 44(7), pages 803-812, March.
  • Handle: RePEc:taf:applec:44:y:2012:i:7:p:803-812
    DOI: 10.1080/00036846.2010.524627
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    References listed on IDEAS

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    1. Diagne, Aliou, 1999. "Determinants of household access to and participation in formal and informal credit markets in Malawi," FCND discussion papers 67, International Food Policy Research Institute (IFPRI).
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