Are Moneylenders Prominent Source ofFinancial Credits to Indian Farmers?
MukeshPankhudi Shukla
One of the important visions of Government for India is to double thefarmer's income by 2022. The issues, challenges and remedialmeasures have been under debate for long. One of the challengingareas in the line of action is the extent of outstanding loan on farmerswhich is due to the moneylenders. In this paper authors have attemptedto explore the depth of the problem area by carrying out an analysisabout the presence of outstanding loan due to moneylenders' i.e. Non-institutional credit. This study has been carried out with the help ofunit level data on "Situation Assessment Survey for Agriculturalhouseholds" collected by National Sample Survey Office (NSSO). Specialattention is given on flow of credit to farmers with reference to bothamount and source and comparisons of loan availed throughinstitutional set-up and moneylenders. Another important feature ofthe paper is evidence that has been collected about the presence ofoutstanding loan due to moneylenders and loan comparisons at stateslevel. It is found that at all India level, every fourth loan availed byfarmers is through moneylenders. This can be deciphered as deeprooted presence of non-institutional credit in rural India.
Keywords: Moneylenders, NSSO, Loan, Farmers, Major States
JEL Classification: E44, E51, G21, G23
Section IIntroduction
Financial Inclusion has been advocated very aggressively in India and
Mukesh ([email protected]) is Joint Director, National Sample Survey Office (Coordinationand Publication Division), Ministry of Statistics and Programme Implementation, Government of India,New Delhi.
Pankhudi Shukla ([email protected]) is Assistant Director, National Sample Survey Office(Regional Office – Lucknow), Ministry of Statistics and Programme Implementation, Governmentof India, New Delhi.
Remarks: Paper was presented in 13th International Conference on Public Policy & Managementorganised by IIM, Bangalore at New Delhi during August 2018.
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accordingly has been spearheaded by the Government from time to time.Financial Inclusion or inclusive financing is the accessible and affordabledelivery of financial services, particularly credit related to all sections, includingdisadvantaged and low-income segments of society. In layman's language, creditto the population means flow of funds from different sources to masses. Anassessment deriving evidences from the recent reports of National SampleSurvey on "Situation Assessment Survey for Agricultural Households" indicatesthat accessing non-institutional credit still continues as far as rural areas andagriculture sector are concerned. It was observed that more than half of Indianagricultural households are indebted and one-fourth of the loans are takenfrom moneylenders. The welfare measures of farmer's1 should be the top agendaof any democratic set-up and all basic institutional financial infrastructuresmust be provided by government to farmers on priority basis. AccordinglyGovernment of India has conducted survey through its centralized agency NSSOon indebtedness of agricultural households in India to have a holistic view onthe issues. Detailed information was collected about the amount of loan andsources of loan from surveyed household. NSSO has classified the sources ofloan into different categories as loan from bank, co-operative society and othersbanking institution, loan from Moneylenders, loan from relatives and friend.Further, loan from bank, cooperative society and others banking institutionhas been grouped and classified as the institutional system of loan and rest asthe non-institutional system of loan. One key outcome of the survey was thepercentage of Indian farmers availing loan from moneylenders. A moneylenderis a person or group who typically offers small personal loans at high rates ofinterest and is distinct from banks and financial institutions that typicallyprovide such loans.
An assessment of the position at ground level indicates that accessing non-institutional credit still continues as far as rural areas and agriculture sectorare concerned. The credit-deposit ratio continues to be low in the rural areas,despite the intermediation of banks. The performance of some of the publicsector banks in rural and agricultural lending is inadequate, while that ofmost of the private and foreign banks is even lower, despite considerableexpansion of the scope of priority sector lending. The dependence onmoneylenders has not decreased in rural areas and has, in fact, increased inseveral regions. Now the basic question is why poorest segment or Indianfarmers are availing loan from moneylenders. Is it because of reluctance ofbanks to cater to the low-income segment or because of lack of 'ease of doingbusinesses with organized lending institutions? The authors believe that while
1. Farmers: In this paper farmers mean agricultural household and agricultural households aredefined as a household receiving some value of produce from agriculture activities (e.g. cultivationof field crops, horticultural crops, fodder crops, plantation, animal husbandry, poultry, fishery,piggery, bee-keeping, vermiculture, sericulture, etc.,) during last 365 days. Further, to eliminatehouseholds pursuing agricultural activities of insignificant nature, households with at least onemember self-employed in agriculture either in the principal status or in subsidiary status andhaving total value of produce more than Rs 3000/- during the last 365 days were only consideredfor being selected for this survey.
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loan availing is not a problem but institutional availing of loan from non-institutional sources at high interest rate is a problem.
Indian agriculture plays an important role in the development of the country;it is the main source of livelihood to majority of Indian population. Credit isone of the critical inputs for agricultural development. It capitalizes farmersto undertake new investments and adopt new technologies, production andmarketing activities. Agricultural development in India has been given dueimportance right from India's First Five Year Plan (1951-56). Innovations inthe area of rural credit have included introduction of Kisan Credit Cards andencouraging SHG-bank linkages. Further, new instruments for financialinclusion such as General Credit Cards and no-frills account were initiated.Micro finance programme was intensified and new guidelines for business-facilitator model were issued. Special Area Plans for banking in several statessuch as Uttaranchal, North Eastern States, Chhattisgarh and Bihar have beenformulated to suit the local conditions. It is obvious that finance empowersthe poor, and farmers to increase their wealth and food production in generaland agriculture finance helps clients provide market-based safety nets, andfund long-term investments to support sustainable economic growth. The mainobjective of finance is to promote growth, ensure better quality of life andmaking financial operations viable. The better quality of life has a broaderperspective; it means that every family has an appropriate income to incur theexpenditure. If expenditure is more than income, then one has to manage thisthrough borrowing, what we call loan. In the recent time doubling farmer'sincome by 2022 has the vision of reducing indebtedness of the farmers inIndia. One fundamental challenge for government of India is the indebtednessof the Indian framers. This is only possible through appropriate informationon the same. This has become very important and infact need of hour to knowabout the indebtedness of Indian farmers.
Legal money lending practices are considered to be a source of financial credit.The comparison with international practice suggests that there is a great dealof similarity with Indian laws. However, some features are peculiar to specificcountries, for e.g. the calculation of repayment amounts in the case of loanstaken in kind, as in Pakistan; the prevention of over indebtedness of theborrower by restricting the amount of loans that could be provided to aparticular borrower as in Japan, South Africa, South Dakota; enabling personsto seek recourse to an alternate dispute resolution mechanism as in SouthAfrica; requiring borrowers to obtain "credit insurance" in South Dakota andSouth Africa and provisions enabling the establishment of credit informationagencies to obtain information about a borrower's indebtedness as in Japan.But, since in India the subject money lending is a matter of state hence, presenceof variations in legislations along states and also within states somehowcomplements the practices. Therefore, it is needed to establish a standard lawin this context so as to put a check on the loopholes and promote the welfarefor the distressed farmers.
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Section IIObjective and Data Source
The measures taken by government till now, to promote institutional loan arewell appreciated but still there is scope for improvement, which is only possiblethrough evidence based policy. This study attempts to provide the same. Theobjective of the study is to analyze the loan data availed from moneylenderswith special focus on socio-economic profile of the farmers in rural India. Theidea is to dig at the gross root level and get the actual causes for approachingmoneylenders for availing loan rather than banks. This study may give someinsight on the persistent preference for moneylenders than the government,which will in turn visualize the actual financial inclusion of India. In the paperdetailed discussion about the flow of credit to farmer's specific to amount andsource at different serial number of loan has been done. This study will alsodescribe the prevalence of non-institutional loans availed from money lendersamong different group of agricultural households in rural India classified bytheir level of living2, social group, family-size, education level of the head ofthe household, type of farmers3 and religion. These classifications will helpto get an insight of the categories which have more prevalence to moneylendersin order to credit put a check in particular on them. Further, in order to analyzethe actual impact of loan size availed through money lenders by famers; loancomparison between the banks/government and cooperative societies andmoneylenders has been initiated. For the loan comparison ratio of averageoutstanding loan on farmers from bank/cooperative societies and moneylenderswith reference to different categories of socio-economic profiles of farmershas been taken. While doing loan comparison special emphasizes has beengiven to the socio-economic profile of farmers. Finally evidence about thepresence of credit through moneylenders and loan comparison in the majorStates4 has been collected, which will help policy input for shifting the farmersloan from moneylenders to institutional set-up. This paper is based on theunit level data of latest "Situation assessment survey for agriculturalhouseholds in India" collected by National Sample Survey (NSS) Office.
2. Level of Living: The level of living is nothing but the usual monthly per capita expenditure (UMPCE)for rural households. The UMPCE has been divided into five quintile classes based on the amountof usual consumer expenditure of the households in a month.Also important to highlight that the survey was conducted in two visit and in both the visit UMPCEwas collected separately but the loan information was only collected in visit one. So level of livingwas calculated based on UMPCE of only visit one.
3. Type of Farmers: In the paper five types of farmers has been demarked, depending ontheir land cultivation size:1. Marginal Farmers: Size 1 hectare or less2. Small Farmers: Size 1 to 2 hectares3. Semi-medium Farmers: Size 2 to 4 hectares4. Medium Farmers: Size 4 to 10 hectares5. Large Farmers: Size above 10 hectare
4. Major States: Major states are those non-hilly States, which has a population more than50 lakhs as per census 2011. So the total 18 states have been listed in this category andaccording analysis has been done only for these states.
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NSS Office was set up by the Government of India in 1950 and is the nodalagency of government to collect socio-economic data with the help of scientificsampling methods. Government has realized that for the overall growth of thecountry, focus must be on the agricultural sector. Government has also realizedthat situation of farmers in the country has deteriorated over the period oftime and accordingly Ministry of Agriculture, Government of India had plannedfor a comprehensive assessment of the situation of farmers in the country withspecific focus on their level of living as measured by consumer expenditure,income and productive assets, their indebtedness, farming practices andpreferences, resource availability, their awareness of technological developmentsand access to modern technology in the field of agriculture.
To meet these requirements, the Situation Assessment Survey (SAS) of farmerswas conducted by the NSSO in its 70th round (January 2013 - December 2013).The survey continued till the end of December of 2013 and covered the wholeof the Indian Union. Each sample FSU were visited twice during this round.Period of the first visit was January-July 2013 the second visit was August-December 2013. Each sample household was visited twice. Contents of theschedules for the two visits were not exactly same since the information relatedto two different seasons. The survey period of the round was divided into twosub-rounds. Sub-round one consisted of the first half of the survey period ofeach visit i.e. 1st January 15th April 2013 for visit one and 1st August-15thOctober 2013 for visit two. Sub-round two consisted of the remaining periodof the respective visits. Thus, duration of each sub-round was three and a halfmonths for visit one and two and a half months for visit two. In each of thesetwo sub-rounds equal number of sample villages/ blocks (FSUs) was allottedfor survey with a view to ensuring uniform spread of sample FSUs over theentire survey period (Detailed design may be seen at End Note 5 given afterreferences).
Section IIIFlow of Credit: Amount and Sources
The prominent indebtedness in rural India is due to cascading loans. It isobserved that the institutional delivery of loans is preferred among indebtedfarmers in case of the first ever loan availed. However, the scenario changes incase of the second loan, 39.6 per cent indebted farmers prefer to avail secondloan from Moneylenders. It is evident from the Table 1 that the preference ofloans from Moneylenders increases with the increase in the series of loansavail by indebted farmers, as 41.9 per cent, 52.0 per cent and 57.3 per centfarmers further avail their third, fourth and fifth loans from Moneylenders.Consequently, the issue highlighted in the Table 1 is the sharp fall ininstitutional delivery of loans with the increase in series of loans among theindebted farmers. It has experienced a huge decline from 35.2 per cent at firstloan to 7.5 per cent at fifth loan from banks and from 23.7 per cent at firstloan to 3.3 per cent at fifth loan from Government/Cooperative societies.
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Table 1Percentage of Source of Loan Availed by Farmers According to the
Serial Number of Loan in Rural India
Serial Number Banks Government and Moneylenders Others Non-of Loan Cooperative Societies Institutional Agencies
First Loan 35.2 23.7 17.8 23.3
Second Loan 14.0 12.3 39.6 34.1
Third Loan 14.8 8.9 41.9 34.4
Fourth Loan 8.2 6.5 52.0 33.3
Fifth Loan 7.5 3.3 57.3 31.9
The key measure for indebtedness is the loan size i.e. the amount of moneytaken as loan. The loan size corresponding to the banks will obviously bemore than that of loan size of moneylenders. It is observed that the loan sizeincreases with the series of loan up to third level in case of moneylenders aswell as banks. However, Table 2 exhibits a quantum jump in the loan size, incase of moneylenders; more than 50 per cent hike can be seen in the loan sizemoving from first to third loan whereas only 11 per cent hike is visible in caseof banks. It is obvious that farmers prefer to take a loan from moneylendersfor small amount whereas for bigger amount they approach institutions.
Table 2Average Amount of Outstanding Loan on Farmers from Different
Sources According to the serial Number of Loan in Rural India
Serial Number Banks Government and Moneylenders Others Non-of Loan Cooperative Societies Institutional Agencies
First Loan 134,555.43 71,813.05 58,773.81 31,731.62
Second Loan 149,657.62 79,703.69 80,369.80 48,351.63
Third Loan 150,521.12 74,795.31 89,755.17 50,229.06
The hassle free flow of credit in the rural society by the institutions is hamperedas is evident from the Table 3 that only 13.8 to 18.0 per cent householdsprefer to go to institutions for their second loan. However, a huge number,77.3 per cent of the indebted farmers consider Moneylenders as a better optionto take consecutive loans. The similar pattern runs for the third, fourth andfifth loans in the series. The increasing popularity of moneylenders amongfarmers increase the possibility of their exploitation by the illegal ones becauseof cascading of loans. It seems the indebted farmers because of the ease ofwithdrawing small amounts as and when needed prefer moneylenders to the
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institutions. Hence, it is needed to channelize the scattered preferences toone, to ease monitoring and flow of money into rural India.
Table 3Farmers Availing Second, Third, Fourth and Fifth Loan as a
Percentage of First Loan From Different Sources in Rural India
Serial Number Banks Government and Money Others Non Allof Loan Cooperative Societies lenders Institutional Agencies Sources
First Loan 100.0 100.0 100.0 100.0 100.0
Second Loan 13.8 18.0 77.3 50.7 34.7
Third Loan 3.7 3.3 20.8 13.0 8.8
Fourth Loan 0.6 0.8 8.1 3.9 2.8
Fifth Loan 0.2 0.1 3.0 1.3 0.9
Section IVPresence of Credit through Moneylenders in Rural India
The education level of farmers affects their preference to avail loans from themoneylenders. The more educated the farmers are the less they opt for availingloans from moneylenders. Figure 1 indicates that the indebted Illiterates have32.4 per cent share of them who availed loans from moneylenders. However,there is a significant and appreciable decrement in the share if the farmerholds a Graduate or above degree, as only 11.5 per cent prefers to avail financialcredit from moneylenders. Thus, in order to curb the illegal money lendingpractices there is a need to educate the rural people, so that they refrain fromavailing financial credits from moneylenders. The financial inclusion schemes
Figure 1Percentage of Farmers Availing Financial Credit Through
Moneylenders in Rural India
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will be well implemented only if the beneficiaries are more educated and awareabout them. The more educated the target population, the easier it will be toimplement the policies successfully and it will be smoother from them to availthe benefits without any intermediaries and loopholes.
Among, the indebted marginal farmers the share of availing credits from themoneylenders are found to be more as compared to the others, which makethem more vulnerable to the usurious interest rates and also to the waysintended to ask for repayment. All the proposed, financial inclusion schemesare meant for the welfare of this lot of farmers but somehow the coverage isstill not adequate. Hence, this lot of farmers should be checked with the benefitsto be availed under various rural credit schemes. Among, the indebted smallfarmers, 23.1 per cent farmers prefer availing loans from moneylenders thanthe organized institutions (Figure 2). Among, the indebted semi-medium farmers25 per cent farmers are found to be more inclined towards moneylenders foravailing agricultural inputs. Among, the indebted medium farmers 21.4 percent farmers borrow money from moneylenders. Lastly, among the indebtedlarge farmers 25.2 per cent farmers avail credits from moneylenders, whichitself seems to be a significant share. The policies for rural credit are made forthe welfare of these farmers, if still such a big number of them prefer to takeloans from moneylenders then this gap between the institutions andbeneficiaries should be looked into.
Figure 2Percentage of Farmers Availing Financial Credit Through
Moneylenders in Rural India
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Figure 3Percentage of Farmers Availing Financial Credit Through
Moneylenders in Rural India
Figure 3 indicate the percentage of farmers belonging in different social groups,availing credit through moneylenders at All India level and gives a clear pictureabout the group of people who are still deprived off the benefits of financialinclusion and other initiatives in reference to rural credits. It was observedthat among, SC and OBC indebted farmers, more inclination is seen towardsborrowing money from moneylenders. However, indebted ST farmers preferinstitutional credit rather than taking loans from moneylenders as comparedto the former. Thus, a much clearer insight can be observed at State level aswell. This fragmented assessment will help to fill the existing gaps between thebeneficiaries and benefitted.
The Monthly Per Capita Expenditure (MPCE) may affect the vulnerability of afarmer to take credit from a moneylenders. As, hypothetically it is said thatthe better-off go to institutions for availing credit whereas majorly the have-nots are more prone to easier accessibility to credits i.e. through moneylenders.However, the picture from the Figure 4 is different. It is observed that 27.9 percent farmers of second Quintile class of level of living availed loan frommoneylenders and almost same has been found for the farmers of first andthird Quintile class of level of living. In fact percentages of farmers availingloan through moneylenders are exactly same in first and third Quintile classof level of living. However, the fifth Quintile class of level of living has lessershare of those availing loans from moneylenders as compared to other classesof indebted farmers.
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Figure 4Percentage of Farmers Availing Financial Credit Through
Moneylenders in Rural India
Figure 5Percentage of Farmers Availing Financial Credit Through
Moneylenders in Rural India
Among the indebted Hindu farmers, 26 per cent prefer to avail financial creditfrom moneylenders. Further from Figure 5 observed that only 9.8 per centfarmers among the indebted Christian farmers and 21.7 per cent among theMuslim farmers preferred to avail loans from the moneylenders. Amongst, theSikh indebted farmers 19.6 per cent prefer to avail credits from moneylenders.The prevalence of institutional credits among the Christian indebted farmersis more than that of indebted farmers of other religion. It seems that themalpractice of illegal money lending targets more to the Hindu farmers thanthat of other religions. Hence, the finding may be used to plan the furthernecessary actions to be taken in this direction.
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Figure 6Percentage of Farmers Availing Financial Credit Through
Moneylenders in Rural India
Indebted farmers who avail loan from moneylenders may be impacted by thesize of family. It is evident from the Figure 6 that the penetration ofmoneylenders is more among the Small Indebted Families (1-3 persons) ascompared to the large (family size of more than five persons) and medium(family size of 4 to 5 persons) indebted families. However, it is depicted thatvariation due to family size is the vulnerability of farmer to avail credit frommoneylender does not seem to contribute much as the difference of share amongeach of the classified families are less.
Section VLoan comparisons: Moneylenders Vs Institutional Set-up
The average amount of outstanding loan on farmers from bank, moneylendersand government & cooperative societies is in Table 5. This average amount ofloan has been estimated for the farmers with reference to different categoriesof socio-economic profiles of farmers. The ratio of average outstanding loanon farmers from bank/cooperative societies and moneylenders with referenceto different categories of socio-economic profiles of farmers may be seen inTable 4. The real scenario of rural India will be unveiled only if a comparisonis based between the loans availed from Moneylenders and institutions.
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Table 4Ratio of Average Outstanding Loan Taken by Farmers from
Banks/Cooperative Societies and Moneylenders in India
Socio-Economic Categories of the Profile Banks to Government and TotalProfile of Farmers Moneylenders Cooperative Institutional
Society to to MoneyMoneylenders lenders
Education of Illiterate farmers 1.26 0.65 1.91head of Family Primary and Middle level 1.46 0.91 2.38
Secondary and Higher Secondary 1.32 0.69 2.00Graduate and above 1.42 0.78 2.20All Level of Education 1.49 0.84 2.33
Religion Hindu Farmers 1.42 0.82 2.24Muslim Farmers 1.34 0.75 2.09Christian Farmers 3.07 1.72 4.79Sikh Farmers 2.78 0.88 3.65Others Religion Framers 1.27 1.03 2.30Farmers of all Religions 1.49 0.84 2.33
Social Group Schedule Tribes 1.46 0.73 2.19Schedule Castes 1.32 0.77 2.09Other Backward Castes 1.44 0.84 2.28Others Caste 1.37 0.73 2.10Farmers of all Castes 1.49 0.84 2.33
Level of Living Level of Living (Q1) 1.09 0.70 1.80Level of Living (Q2) 1.28 0.67 1.94Level of Living (Q3) 1.54 0.73 2.27Level of Living (Q4) 1.41 1.03 2.44Level of Living (Q5) 1.36 0.72 2.08All Level of Living 1.49 0.84 2.33
Type of Farmers Marginal Farmer 1.27 0.75 2.02Small Farmer 1.34 0.80 2.14Semi Medium Farmer 1.41 0.81 2.22Medium Farmer 1.62 0.83 2.45Large Farmer 2.40 1.02 3.42All Type of Farmers 1.49 0.84 2.33
Family Size Small Family 1.34 0.69 2.03Medium Family 1.52 0.84 2.37Large Family 1.54 0.95 2.49All size of Family 1.49 0.84 2.33
It is observed that the average amount of loan availed from bank is more thanthat taken from Moneylender. In rural India, average amount of loan availedby farmers from banks is equivalent to 1.49 times that availed from themoneylenders. In case of loans taken from government and cooperativessocieties, average amount of loan availed by farmers from them are 0.26 timesless than that availed from the moneylenders. However, overall it may be inferredthat average amount of loan availed from the institutions by the farmers 2.3times more than the average amount of loan availed from the moneylenders.Besides all these key observations, a clear insight of ground level scenario
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may be observed by taking all the considered socio-economic factors one byone. For example, the average amount of loan taken from institutions byeducated farmer is more than that of the illiterate farmers. The average amountof loan taken from institutions by Christian farmers is 2.6 times more thanthat of Hindu farmers. Similarly, the average amount of loan taken frominstitutions by the OBC farmers is even more than the ST or SC farmers. Alsoit is found that the average amount of loan taken from institutions by theupper middle class farmers is more than the farmers having lower livingstandards. The average amount of loan taken from institutions by the largefarmers is 1.4 times more than that of the marginal farmers. The averageamount of loan taken from institutions by the famers having large family sizeis more than that of the farmers having small or medium sized families.
Section VIEvidence at State Level
It is observed that in four major states the monopolizing position ofmoneylenders still persists (Figure 7). Bihar tops the list with 46.2 per cent ofits indebted farmers are availing financial credit still from the moneylenders.Andhra Pradesh and Telangana stands second and third in the list with theirshare of 43.2 per cent and 43 per cent respectively. Rajasthan stood fourthwith 40.6 per cent of its indebted farmers borrowing money from moneylenders.However, the rest of the major states depicts satisfactory picture as comparedto these four in the share of indebted farmers availing loans from moneylenders.Also, it is observed that some of the States have very less penetration ofmoneylenders in them, Kerala proves to be the best with a minimal share of5.8 per cent followed by Assam with 6.6 per cent, Maharashtra with 7.3 percent and Chhattisgarh with 8.9 per cent. Hence, in these states the indebtedfarmers prefer to avail more of institutional credit than the non- institutional.Thus, the initiative with regard to financial inclusion somehow seems not toreach at the ground level, majorly in the four states i.e. Bihar, Andhra Pradesh,Telangana and Rajasthan, were the matter is of grave concern.
Figure 7Percentage of Farmers Availing Financial Credit Through
Moneylenders in the Major States of Rural India
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The various financial inclusion schemes taken by the Government of India willfail if it lacks proper evaluation. The overall scenario of rural India can becarved out only if a comparison between the Institutional delivery of loans canbe done with the traditional moneylending practices i.e. via Moneylenders.The evaluation reveals that the average amount of loan taken from banks bythe rural farmers of Assam State is much more than that taken by the ruralfarmers of Andhra Pradesh, Telangana and Chhattisgarh. It can be inferredthat the institutional delivery of loans did not claim full coverage into the ruralareas of these states that is why rural farmers of these state is still rely on thetraditional moneylending practices i.e. via Moneylenders. Figure 8, explainsthe highly variable scenario of rural India comparing the loans availed fromBank to that taken from Moneylenders by the farmers; it gives a clearer insightof the problem areas and it is needed to be checked and explored so as to havea parity throughout the Nation.
Figure 8Ratio of Average Outstanding Loan Taken from Banks and
Moneylenders by Farmers Across the States
Moneylenders in rural India seem to have less popularity as compared to thegovernment/cooperative societies for the States of Assam, Gujarat, Kerala,Maharashtra and Odisha. The inter-state variation of average amount of loanavailed from moneylenders to that of the government/cooperative societies arevery much discrete. It is evident from the Figure 9 that the States like MadhyaPradesh, Punjab, Haryana, Tamil Nadu and Karnataka have still the dominanceof moneylenders as far as the average amount of loan availed from them by thefarmers is concerned as compared to the average amount of loan availed fromthe government/cooperative society by the rural farmers. The variation amongstates like kerala, uttar pradesh, telangana and chhattisgarh show that theratio of average amount of loan availed from the government/cooperative societyto that availed from moneylenders is proportional to their local system ofmoneylending. The average amount of loan availed by rural farmers of UttarPradesh from Moneylenders is more than that availed by the government/
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cooperative society. This variable scenario among states as regardsMoneylenders should be taken up by the respective State governments in orderto curb the illegal money lending practices.
Figure 9Ratio of Average Outstanding Loan Taken from Governments/Cooperative
Societies and Moneylenders by Farmers in the Indian States
Section VIIConclusion
In the above sections an attempt has been made to develop the understandingof rural financial informal credit at micro level. It has become a matter of deepconcern to study the informal credit system of India, in order to curb themalpractices of illegal money lending. In the same context, this study has beendone to see if the moneylenders are prominent source of indebtedness in ruralIndia.
Government of India, in the year 2006, decided to constitute an Expert Groupunder the chairmanship of Prof R Radhakrishna, Director, Indira GandhiInstitute of Development Research, Mumbai, to look into the problems ofagricultural indebtedness in its totality and suggest measures to provide reliefto farmers across the country. The Expert Group submitted its report toGovernment of India in July 2007. The Group, in its report, made wide-rangingrecommendations to address the issue of agricultural indebtedness. Therecommendations include immediate credit-related measures, reforms infinancial and institutional architecture, risk mitigation measures, etc.Radhakrishna Expert Group has also suggested that there is a need for a one-time measure for providing long-term loans by banks to farmers to enablethem to repay their debts to the moneylenders by setting up of a "MoneylendersDebt Redemption Fund". The recommendation of one time measure despitebeing best was not followed and further the efforts required at states level is
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not up to mark. This uneven administrative approach lead to dilution andexpansion of formal credit system in the country. It has been observed that theinstitutional delivery of loans is found much more popular among the ruralindebted farmers of Assam, Gujarat, Kerala, Maharashtra and Odisha. However,the prominent source of indebtedness among the rural farmers of AndhraPradesh, Bihar, Chhattisgarh, Telangana and Uttar Pradesh stands out to bethe Moneylenders.
The Task Force on 'Credit Related Issues of Farmers' under the Chairmanshipof Shri U C Sarangi, submitted report to the Ministry of Agriculture, Governmentof India, looked into the issue of a large number of farmers who had availedloans from private moneylenders, but not covered under the 'Agricultural DebtWaiver and Debt Relief Scheme' of 2008. The Task Force Report has observedthat "more disquieting feature of the trend was the increase in the share ofmoneylenders in the total debt of cultivators. There was an inverse relationshipbetween land-size and the share of debt from informal sources. Moreover, aconsiderable proportion of the debt from informal sources was incurred at afairly high rate of interest". About 36 per cent of the debt of farmers frominformal sources had interest ranging from 20 to 25 per cent. Another 38 percent of loans had been borrowed at an even higher rate of 30 per cent andabove, indicating the excessive interest burden of such debt on small andmarginal farmers. The continued dependence of small and marginal farmerson informal sources of credit such as private moneylenders was attributed toconstraint in the rural banking network and services arising out of financialsector reforms. Rigid procedures and systems of formal sources preventingeasy access by small and marginal farmers, vied with the easy and more flexiblemethods of lending adopted by informal sources. The Task Force memberscame across situations where farmers were borrowing at the rate of five to tenper cent per month. This paper has also found that more educated rural farmersdo not become indebted to the moneylenders.
The issue of mainstreaming moneylenders has confronted the government andpolicy makers for a long time. Further financial credit to farmers belongs fromdifferent socio-economic strata has its own inherent backwardness in thecountry like India. It is important to highlight that Christian farmers prefer toavail loans from institutions than moneylenders and indebted haves ruralfarmers do not avail credits from moneylenders. The marginal farmers in ruralIndia still have a significant percentage who gets distressed by the indebtednessfrom moneylenders. Among the social distribution OBC rural indebted farmersprefer to take loans from institution than the moneylenders. So it is importantfor government to think on the credit front and ensure that the financial systemof the country is ready to do more for the credit needs of farmers. As we allwill agree that the rural banking was traditionally a monopoly of moneylenders,so after the 70 years of the independence farmers welfare must be the topagenda of any government. What is important for farmers is a lower rate ofinterest or reliable access to credit at reasonable rates. The authors believe
Mukesh & Shukla: Are Moneylenders Prominent Source of Financial Credits... 405
that government must address the question that existing institutionalframework is adequate for meeting the requirements of farmers?. The answeris no. India has to create new institutional structures such as SHGs, microfinance institutions, etc., to provide improved and reliable access of credit.
India wants to double the farmer's income by 2022. It is also observed theagricultural growth rate has declined during last few decade. It is observedthat the reduction in rural poverty is only possible through agricultural growth.Further it is conscious that the farmer's distress in one of hurdle is agriculturalproductivity in India and the fundamental reason behind agricultural distressis outstanding loan on farmers. Solution of this problem is possible throughGovernment intervention. Therefore, this study clearly makes a case forimmediate policy interventions.
References1. Government of India (2014): "Key Indicator of Situation of Agricultural Households in
India", January-December 2013, National Sample Survey Office, Ministry of Statisticsand Programme Implementation.
2. Government of India (2015): "Some Characteristics of Agricultural Households in India",January-December 2013, National Sample Survey Office, Ministry of Statistics andProgramme Implementation.
3. Government of India (2016): "Some Aspects of Farming in India", January-December2013, National Sample Survey Office, Ministry of Statistics and ProgrammeImplementation.
End Note5. A stratified multi-stage design has been adopted for the survey. The first stage units are the
census villages (Panchayat wards in case of Kerala) in the rural sector and Urban FrameSurvey blocks in the urban sector. The ultimate stage units are households in both thesectors. In case of large first stage units, one intermediate stage of sampling is the selectionof two hamlet-groups/ sub-blocks from each rural/ urban FSU.
Sampling Frame for First Stage Units: For the rural sector, the list of 2001 census villagesupdated by excluding the villages urbanized and including the towns de-urbanized after2001 census constitutes the sampling frame. For the urban sector, the latest updated list ofUrban Frame Survey blocks (2007-12) is considered as the sampling frame.
Stratification
Stratum has been formed at district level. Within each district of a State/ UT, generally speaking,two basic strata have been formed: (i) rural stratum comprising of all rural areas of the districtand (ii) urban stratum comprising all the urban areas of the district. However, within the urbanareas of a district, if there were one or more towns with population 10 lakhs or more as perpopulation census 2011 in a district, each of them formed a separate basic stratum and theremaining urban areas of the district was considered as another basic stratum. However, a special
406 Prajnan
stratum in the rural sector only was formed at State/UT level before district- strata were formedin case of each of the following 20 States/UTs: Andaman & Nicobar Islands, Andhra Pradesh,Assam, Bihar, Chhattisgarh, Delhi, Goa, Gujarat, Haryana, Jharkhand, Karnataka, Lakshadweep,Madhya Pradesh, Maharashtra, Odisha, Punjab, Rajasthan, Tamil Nadu, Uttar Pradesh and WestBengal. This stratum will comprise all the villages of the State with population less than 50 asper census 2001.
Sub-stratification
Rural sector: Different sub-stratifications are done for 'hilly' States and other States. Ten Statesare considered as hilly States. They are: Jammu & Kashmir, Himachal Pradesh, Uttarakhand,Sikkim, Meghalaya, Tripura, Mizoram, Manipur, Nagaland and Arunachal Pradesh.
1. Sub-stratification for hilly States: If 'r' be the sample size allocated for a rural stratum, thenumber of sub-strata formed was 'r/2'. The villages within a district as per frame have beenfirst arranged in ascending order of population. Then sub-strata 1 to 'r/2' have beendemarcated in such a way that each sub-stratum comprised a group of villages of the arrangedframe and have more or less equal population.
2. Sub-stratification for other States (non-hilly States except Kerala): The villages within adistrict as per frame were first arranged in ascending order of proportion of irrigated areain the cultivated area of the village. Then sub-strata 1 to 'r/2' have been demarcated in sucha way that each sub-stratum comprised a group of villages of the arranged frame and havemore or less equal cultivated area. The information on irrigated area and cultivated areawas obtained from the village directory of census 2001.
3. Sub-stratification for Kerala: Although Kerala is a non-hilly State but because of non-availability of information on irrigation at FSU (Panchayat Ward) level, sub-stratification byproportion of irrigated area was not possible. Hence the procedure for sub-stratificationwas same as that of hilly States in case of Kerala.
Urban sector: There was no sub-stratification for the strata of million plus cities. For otherstrata, each district was divided into two sub-strata as follows:
Sub-stratum 1: all towns of the district with population less than 50000 as per census 2011
Sub-stratum 2: remaining non-million plus towns of the district
Total sample size (FSUs): 8042 FSUs have been allocated for the central sample at all-Indialevel. The total number of sample FSUs have been allocated to the States and UTs in proportionto population as per census 2011 subject to a minimum sample allocation to each State/ UT.While doing so, the resource availability in terms of number of field investigators as well ascomparability with previous round of survey on the same subjects has been kept in view. State/UT level sample size has been allocated between two sectors in proportion to population as percensus 2011 with double weightage to urban sector subject to the restriction that urban samplesize for bigger states like Maharashtra, Tamil Nadu, etc. should not exceed the rural sample size.A minimum of 16 FSUs (minimum 8 each for rural and urban sector separately) is allocated toeach state/ UT. Within each sector of a State/ UT, the respective sample size has been allocated tothe different strata in proportion to the population as per census 2011. Allocations at stratumlevel are adjusted to multiples of two with a minimum sample size of two.
Selection of FSUs: For the rural sector, required number of sample villages has been selected bySimple Random Sampling without Replacement (SRSWOR). For the urban sector, FSUs havebeen selected by using Simple Random Sampling without Replacement (SRSWOR) from eachstratum x sub-stratum. Both rural and urban samples were drawn in the form of two independentsub-samples and equal number of samples has been allocated among the two sub rounds.
Mukesh & Shukla: Are Moneylenders Prominent Source of Financial Credits... 407
For the Situation Assessment Survey of Agricultural Households (SAS) (rural only): Only'agricultural households' are considered for this schedule and the sample households are selectedby SRSWOR.
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Table 5Average Outstanding Loan Availed by Farmers From
Different Sources in India
Socio-Economic Categories of the Profile Banks Government Money TotalProfile of Farmers and lenders Institutional
CooperativeSociety
Education of Illiterate farmers 69,546.54 35,720.91 55,176.53 105,267.45head of Family Primary and Middle level 92,726.10 57,944.84 63,393.47 150,670.94
Secondary and HigherSecondary 114,087.63 59,561.58 86,731.49 173,649.21Graduate and above 161,438.42 88,147.71 113,537.30 249,586.13All Level of Education 93,008.66 52,637.19 62,507.05 145,645.85
Social Group Schedule Tribes 57,834.25 29,043.64 39,711.79 86,877.89Schedule Castes 53,094.08 30,985.68 40,316.86 84,079.76Other Backward Castes 93,379.17 54,529.93 64,772.02 147,909.10Others Caste 119,598.45 64,092.53 87,561.37 183,690.98Farmers of all Castes 93,008.66 52,637.19 62,507.05 145,645.85
Level of Living Level of Living (Q1) 53,321.07 34,265.54 48,697.87 87,586.61Level of Living (Q2) 63,868.93 33,302.13 49,969.67 97,171.06Level of Living (Q3) 85,469.15 40,674.54 55,609.52 126,143.69Level of Living (Q4) 80,276.05 59,052.43 57,109.45 139,328.48Level of Living (Q5) 149,440.82 79,208.62 109,991.04 228,649.44All Level of Living 93,008.66 52,637.19 62,507.05 145,645.85
Type of Farmers Marginal Farmer 65,073.93 38,454.78 51,284.35 103,528.71Small Farmer 87,775.24 52,726.97 65,546.01 140,502.21Semi Medium Farmer 121,042.51 69,881.61 85,994.30 190,924.12Medium Farmer 200,410.19 102,132.04 123,721.59 302,542.23Large Farmer 309,885.36 131,136.29 128,936.75 441,021.65All Type of Farmers 93,008.66 52,637.19 62,507.05 145,645.85
Family Size Small Family 84,945.21 43,953.11 63,459.79 128,898.32Medium Family 86,650.05 48,034.47 56,846.88 134,684.52Large Family 104,586.80 64,174.10 67,839.30 168,760.90All size of Family 93,008.66 52,637.19 62,507.05 145,645.85
Mukesh & Shukla: Are Moneylenders Prominent Source of Financial Credits... 409
Table 6Average Outstanding Loan (Rs.) Availed by Farmers from
Different Sources in the Major States of India
Sr. State Banks Government and Moneylenders TotalNo. Cooperative Society Institutional
