Working Paper: 490

Determinants of Agricultural Credit in Rural India by Social Group

Karthick V
Madheswaran S

 

Abstract

Despite the increase in the supply of formal credit to agriculture, the post-reform period in India witnessed an enormous gap between households' credit access. Although the decreasing share of wealth and resources affect farmers adversely in access to credit, there are also other social and economic factors involved, and understanding them is equally important in access to credit. Therefore, this study aims to analyse the trends and determinants of formal agricultural credit in India by using AIDIS data. Both the Probit and Heckman’s selectivity bias-corrected-OLS models are employed to analyse the determinants of access to credit, and amount of credit respectively. The study results find that social status, land size, irrigated area, asset values, and education levels of the heads of households influence the formal agricultural credit they receive. This result exemplifies that the government needs to revamp the existing credit policies to make access to credit more inclusive.

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