Abstract
The exploitation of informal money lenders and huge debt burden on the rural labour force can’t be ignored across India till now. The study assesses the underlying causes of existence of informal credit along with available subsidized formal credit in rural areas in India. It builds up a simple theoretical approach based on specific assumptions on entrepreneurial choice intended for sources of credit as investment to their house-based industries and thus evaluates the theoretical frame-work to a self-surveyed data set. It is empirically tested that the decision of the entrepreneurs is formed, basically, by the interaction between the cost of access to formal credit and the relative efficiency of formal and informal lending mechanisms. Institutional credit can’t be effectively served until and unless a proper interlinked credit policy coupled with default management strategies, flexible terms and conditions along with wide branch networks sets up.
Highlights
The house-based industry (Note 1) is an integral part of India’s rural prospect as it acts as a key to generating employment opportunities for the rural surplus labour force irrespective of gender, enhances entrepreneurial ability and provides economic benefits to the poor land less rural population and comprises deep end of rural poverty
The results show, as a whole, that income class of the household, loan borrowed from the formal sector as a proportion of the total loan borrowed by the entrepreneur, interest rates in both the formal and informal sectors, distance of the formal lender, political affiliation to the local panchayat party, and associated other obstacles to getting a loan from the formal sector are the major determinants that the loan from the formal sector can be invested in productive purposes
This study addressed two basic quarries-first, what are the factors that affect entrepreneurs’ choice about sources of borrowing the capital for business and second, what determines that the borrowed capital go to productive purposes? entrepreneur’s investment decision mainly drives by interest rates, distance to the formal lender, political affiliation of the household, and some obstacles to get loan from the formal sector are the significant factors that impinge on borrowing from formal sector
Summary
The house-based industry (Note 1) is an integral part of India’s rural prospect as it acts as a key to generating employment opportunities for the rural surplus labour force irrespective of gender, enhances entrepreneurial ability and provides economic benefits to the poor land less rural population and comprises deep end of rural poverty. Disbursements of credit by NABARD has increased Rs. 10535.29 crore in 2008-09 to Rs. 13485.87 crore in 2010-11, the credit to SHGs has reduced by 6 percent point of total disbursement over the same period Given this background of rural credit flow by the formal institutions, informal lenders remain the dominant source of credit for poor households. The cost of credit acts as an important demand side constraint in getting access to formal sector credit. This is the additional amount, over and above the amount borrowed, that the borrower has to pay.
Sign-in/Register to view highlights & summary 
Published Version (
Free)
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
