Key Determinants of for-Profit Micro Finance Institutions Credit: A Study on Rural Manufacturing Households

Abstract

The pathetic condition of Indian agriculture speaks volumes about the distress in its rural economy. Manufacturing activity, though providing hope, is constrained by the availability of credit. From social banking to for-profit micro finance institutions (MFIs), the rural economy has witnessed a sea change in the public provisioning of credit. The phenomenal growth of for-profit MFIs in recent years is associated with growing concerns over their unethical practices and exploitation of the rural poor. The present study attempts to trace the factors that influence rural households’ dependence on forprofit MFI credit, despite the abovementioned concerns. The study is based on a primary survey and uses logit and probit models. The estimated results suggest that the factors like access to bank credit and household poverty factors—such as per capita income, number of male workers, and the existence of wage labour—significantly influence the probability of accessing for-profit MFI credit. Accordingly, the present study proposes remedial policies like the expansion of scheduled commercial banks (SCBs) and not-forprofit MFIs, apart from strict regulation of for-profit MFIs.