Volume : III, Issue : IV, April - 2014

Determinants of Interlinked Credit Contracts in Informal Agricultural Credit Market

Dr. S. Gandhimathi, G. Mookambigai

Abstract :

There are very many reasons for the existence of informal credit market in agriculture such as, credit rationing in the formal credit market, which is argued on both the negative and positive sides, minimal access to formal credit and high cost of borrowing from formal institutions. These act as the push factors compelling the rural borrowers towards informal credit relation (Selvaraj and Sundaravarada Rajan, 1999).

The credit-rationed borrowers can not get credit at any interest rate and the unmet demand can be satisfied in the informal credit market at high interest rate. There is a large-scale expansion of informal credit with high degree of commercialisation (Feder et al, 1988, Bell, 1990, Reddy, 1992, Swaminathan, 1993, Birthal and Singh, 1993. Bell et al, 1988, Reddy, 1992). The literature on agrarian contracts in the less developed countries highlights the presence of interlinked markets in the informal credit. An interlinked contract is one in which two or more interdependent exchanges are simultaneously agreed upon. While interlinkage may be of various kinds, the most commonly observed ones are those involving the informal (agrarian) credit markets, the labour market, the land market and the market for grains. The nature of linkages depends on the relative bargaining power of the parties involved in the credit transactions, relative urgency of credit and the availability of formal credit. Hence, a linkage may be either beneficial to both the parties involved in credit transactions or disadvantageous to the weaker parties (Reddy, 1992). Since interlinked contracts form an integral part of the rural economy, the subject of interlinkage had received a great deal of empirical attention (Bardhan and Rudra, 1978). This is turn, has led to a spurt of theoretical research (Mitra, 1983, Basu, 1983, Gupta, 1987 and Bell, 1988).

Hence the focus of the present study is to examine, the role of informal credit market in agriculture, types of interlinked credit transactions and the determinants of interlinked credit transactions.

The specific objectives of the study are :

1. To study the types interlinked credit contracts and extent of interlinked credit contracts.

2. To identify the factors determining interlinked credit contracts.

To conclude small farmers were the major beneficiaries of informal credit market. But marginal farmers were not able to get adequate credit in informal credit market. More than 90 percent of the farmers involved in all types of credit contracts, such as cash to cash, cash to labour, seeds to cash and fertilizers to cash contracts. Nearer findings were observed by Basu (1983) and Bardhan (1984). They identified credit labour inter linkage in the informal agricultural credit market. The value of farm equipments and expenses on seeds were the dominant factors in discriminating the borrowers under all credit contracts in to large and small borrowers. Though the farmers benefited from the informal sources, the farmers were highly exploited in the interlinked credit market through high implicit rates of interests.

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Article: Download PDF   DOI : 10.36106/ijsr  

Cite This Article:

DR.S.GANDHIMATHI, G.Mookambigai Determinants of Interlinked Credit Contracts in Informal Agricultural Credit Market International Journal of Scientific Research, Vol.III, Issue. IV Apr 2014

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