Factors responsible for Defaulters of Dairy Credit: A Discriminant Approach

Abstract

Credit is the most critical factor in stimulating private capital formation in agriculture. It is reported that 66.33 per cent of the private investment in agriculture was facilitated through institutional finance. Studies suggest that the incidence of overdues in the agricultural credit system had been increasing over the years there by steadily eroding the commercial viability of the system in the past though the things have altered marginally during the nineties. The study based on primary data was carried out in Karnataka, India using Multistage Random Sampling. Discriminant function analysis was used for identifying factors responsible for discriminating defaulters from non-defaulters of dairy loans. The study revealed that important discriminating factors were per capita food expenditure, percentage of earning adults in the family, per capita income from dairy, percentage expenditure to total income and capital investment in dairying. While the first four factors were positively related to the higher repayment, the later was negatively related with the repayment. Further the model was used to predict whether a borrower is likely to be a non-defaulter or defaulter. The model correctly predicted 69 per cent of defaulters and wrongly predicted 31 per cent of defaulters. Similarly model was able to predict 72 per cent of non-defaulters correctly as non-defaulters and 28 per cent wrongly as defaulters. Overall model was successful in classifying 70 per cent of the borrowers correctly. Thus model was found to be valid to predict whether an unknown borrower is likely to be defaulter, more precisely.