Interactions between Institutional and Informal Credit Agencies in Rural India |
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Authors: | Bell Clive |
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Institution: | The author is a professor of economics at Vanderbilt University. This article was originally prepared for a World Bank Conference on Agricultural Development Policies and the Theory of Rural Organization, Annapolis, Maryland, June 1416, 1989. This revised version has benefited from the valuable comments of Kaushik Basu, Karla Hoff, and three anonymous referees. |
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Abstract: | In an attempt to expand rural credit and displace the villagemoneylender, India created a system of rural cooperatives inthe 1950s and expanded branch banking into rural areas in the1970s. This article examines how these measures affected therural market. It begins with the question of how large the expansionof institutional credit has been and the extent to which ithas dislodged the village and nonresident moneylenders. A detailedcomparison of three major surveys of the Indian rural creditmarket suggests that in various guises, the moneylender is stilla major source of loans. The article also examines the (weak)evidence on intermediation between the formal and informal sectors.A formal model of the interaction between the informal moneylenderand institutional lender is constructed under a variety of assumptionsabout the exclusivity of loan contracts and the competitivestructure of the informal sector. The conclusions are drawntogether in the form of five proposals for public policy. |
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