Repercussions of Reliance on Informal Sources of Finance: A Study of Tribal Communities in Kerala

Abstract

The economic and social consequences of reliance on informal finance are enormous in the case of socially and economically disadvantaged people like the tribal communities. These communities have become more financially vulnerable due to the severe barriers in accessing institutionalised formal finance. Drawing on data collected from 246 randomly chosen households from four tribal communities (Kurichya, Kuruma, Adiya and Paniya) in the Wayanad district of Kerala, and using mixed-method approach, the study seeks to examine the repercussions of reliance on informal source of finance by the tribal communities. The study reveals that the agents of informal financiers also resort to social demoralising and mental harassment towards the tribal households. The study shows that tribal households may not be aware of compounding effect of interest rates when they avail credit from any source of finance, especially informal finance. This in turn increases the indebtedness among the tribal communities. All these call for the need of tailoring institutional (formal) credit solutions suitable to the credit needs and socio-economic conditions of the weaker segments of the society like the tribal communities. The study suggests adopting supply-side cum demand-side strategies.