Current Science

Open Access Open Access  Restricted Access Subscription Access

Individual Borrowing and Default Behaviour in Surplus and Constrained Credit Environments: Evidence from India


Affiliations
1 DOMS, Indian Institute of Science, Sir C. V. Raman Road, Bengaluru 560 012, India
 

The present article studies borrowing behaviour between credit surplus and credit constrained environments in the context of microfinance, with respect to rural borrowing. Surplus and constrained environments get defined based on the number of the statepromoted self help groups (SHGs) in the district, and the volume of credit disbursed through these SHGs. Four hundred nineteen respondents comprising of farmers, off-farm workers, farm labourers, small businesspersons, SHG members and chit-fund or cooperative members were interviewed in the surplus district of Chittoor and the constrained district of Nalgonda in the erstwhile state of Andhra Pradesh. Statistical analyses comprising of OLS, binary logistic regression, ANOVA, t-test and chi-square tests show that surplus environments offer more adverse credit terms, especially for farmers and farm labourers. Further, surplus causes over-borrowing and defaults. Constraint propels planned repayments. Both the environments offer varying credit terms across trades. We also observe better lending terms when farmers and traders are among lenders in a constraint environment. Interlinking factor markets like land, labour and capital in a constrained environment leads to efficient outcomes, reinforcing the theory of New Institutional Economics.

Keywords

Behaviour, Borrower, Constraint, Credit Terms, Surplus.
User
Notifications
Font Size

  • Datta, U., Socio-economic impacts of JEEViKA: a large-scale selfhelp group project in Bihar, India. World Develop., 2015, 68, 1–18.

  • Banerjee, A. V., Breza, E., Duflo, E. and Kinnan, C., Do credit constraints limit entrepreneurship? Heterogeneity in the returns to microfinance, 2017.

  • Foltz, J. D., Credit market access and profitability in Tunisian agriculture. Agric. Econ., 2004, 30(3), 229–240.

  • Augsburg, B., De Haas, R., Harmgart, H. and Meghir, C., The impacts of microcredit: evidence from Bosnia and Herzegovina. Am. Econ. J.: Appl. Econ., 2015, 7(1), 183–203.

  • Aubert, C., de Janvry, A. and Sadoulet, E., Designing credit agent incentives to prevent mission drift in pro-poor microfinance institutions. J. Dev. Econ., 2009, 90(1), 153–162.

  • Antonio Bittencourt Marconatto, D., Barin Cruz, L., Legoux, R. and Correa Dantas, D., Microfinance in Latin America and the Caribbean: the influence of territory on female repayment performance in a polarized region. Manage. Decision, 2013, 51(8), 1596–1612.

  • Cull, R., Asli Demirgüç-Kunt, A. and Morduch, J., Microfinance meets the market. J. Econ. Perspect., 2009, 23(1), 167–192.

  • McIntosh, C. and Wydick, B., Competition and microfinance. J. Dev. Econ., 2005, 78(2), 271–298.

  • Pearson, R. S., Relationship banking in a competitive environment with and without information sharing: The importance of credit bureaus in microfinance, Doctoral dissertation, The Ohio State University, 2008.

  • Herath, G., Analysis of the potential and problems of new institutional economics for third world development. Int. J. Soc. Econ., 2005, 32(10), 877–892.

  • Hartarska, V. and Nadolnyak, D., An impact analysis of microfinance in Bosnia and Herzegovina. World Dev., 2008, 36(12), 2605–2619.

  • Hiatt, S. R. and Woodworth, W. P., Alleviating poverty through microfinance: village banking outcomes in Central America. Soc. Sci. J., 2006, 43(3), 471–477.

  • Berger, A. N., Frame, W. S. and Ioannidou, V., Tests of ex ante versus ex post theories of collateral using private and public information. J. Financial Econ., 2011, 100(1), 85–97.

  • Bond, P. and Rai, A. S., Borrower runs. J. Dev. Econ., 2009, 88(2), 185–191.

  • Stiglitz, J. E. and Weiss, A., Credit rationing in markets with imperfect information. Am. Econ. Rev., 1981, 71(3), 393–410.

  • Kropp, J. D., Turvey, C. G., Just, D. R., Kong, R. and Guo, P., Are the poor really more trustworthy? A micro-lending experiment. Agric. Finance Rev., 2009, 69(1), 67–87.

  • Tsai, K. S., Imperfect substitutes: the local political economy of informal finance and microfinance in rural China and India. World Dev., 2004, 32(9), 1487–1507.

  • Dalla Pellegrina, L., Microfinance and investment: a comparison with bank and informal lending. World Dev., 2011, 39(6), 882–897.

  • Ovesen, J. and Trankell, I. B., Symbiosis of microcredit and private money lending in Cambodia. Asia Pac. J. Anthropol., 2014, 15(2), 178–196.

  • Menkhoff, L., Neuberger, D. and Rungruxsirivorn, O., Collateral and its substitutes in emerging markets’ lending. J. Bank. Finance, 2012, 36(3), 817–834.

  • Turvey, C. G. and Kong, R., Informal lending amongst friends and relatives: can microcredit compete in rural China? China Econ. Rev., 2010, 21(4), 544–556.

  • Barham, B. L., Boucher, S. and Carter, M. R., Credit constraints, credit unions, and small-scale producers in Guatemala. World Dev., 1996, 24(5), 793–806.

  • Kochar, A., An empirical investigation of rationing constraints in rural credit markets in India. J. Develop. Econ., 1997, 53(2), 339–371.

  • Sandhu, N., Hussain, J. and Matlay, H., Barriers to finance experienced by female owner/managers of marginal farms in India. J. Small Bus. Enterprise Dev., 2012, 19(4), 640–655.

  • Rao, S., Reforms with a female face: gender, liberalization, and economic policy in Andhra Pradesh, India. World Dev., 2008, 36(7), 1213–1232.

  • Fletschner, D., Rural women’s access to credit: market imperfections and intrahousehold dynamics. World Dev., 2009, 37(3), 618–631.

  • Pereira, S. and Mourao, P., Why does the microcredit borrowing rate differ across countries? A cross-country study. Int. J. Soc. Econ., 2012, 39(8), 536–550.

  • Mansuri, G., Credit layering in informal financial markets. J. Develop. Econ., 2007, 84(2), 715–730.


Abstract Views: 343

PDF Views: 123




  • Individual Borrowing and Default Behaviour in Surplus and Constrained Credit Environments: Evidence from India

Abstract Views: 343  |  PDF Views: 123

Authors

Padmavathi Koride
DOMS, Indian Institute of Science, Sir C. V. Raman Road, Bengaluru 560 012, India
Anjula Gurtoo
DOMS, Indian Institute of Science, Sir C. V. Raman Road, Bengaluru 560 012, India

Abstract


The present article studies borrowing behaviour between credit surplus and credit constrained environments in the context of microfinance, with respect to rural borrowing. Surplus and constrained environments get defined based on the number of the statepromoted self help groups (SHGs) in the district, and the volume of credit disbursed through these SHGs. Four hundred nineteen respondents comprising of farmers, off-farm workers, farm labourers, small businesspersons, SHG members and chit-fund or cooperative members were interviewed in the surplus district of Chittoor and the constrained district of Nalgonda in the erstwhile state of Andhra Pradesh. Statistical analyses comprising of OLS, binary logistic regression, ANOVA, t-test and chi-square tests show that surplus environments offer more adverse credit terms, especially for farmers and farm labourers. Further, surplus causes over-borrowing and defaults. Constraint propels planned repayments. Both the environments offer varying credit terms across trades. We also observe better lending terms when farmers and traders are among lenders in a constraint environment. Interlinking factor markets like land, labour and capital in a constrained environment leads to efficient outcomes, reinforcing the theory of New Institutional Economics.

Keywords


Behaviour, Borrower, Constraint, Credit Terms, Surplus.

References





DOI: https://doi.org/10.18520/cs%2Fv117%2Fi2%2F227-234