Credit for Whom and for What? The Diversity of Borrowing Sources and Borrowing Uses in Rural South-India

This case study from rural Southern India examines poor household’s borrowing practices.

Impact studies have shown mixed results about the impact of microfinance on poverty. The study combines descriptive statistics and qualitative analysis to show that:

• Households juggle with a wide range of borrowing sources that serve specific purposes;
• Economic criteria such explain these differentiations to a large extent;
• Social criteria behind borrowing, such as consequences in terms of borrower’s reputation and lenders’ control on money use, are also important contributors to debt decisions;
• Borrowers take into account costs and risks of social criteria when making debt decisions.

The study demonstrates the need for a better understanding of the actual uses of microcredit and their implications for clients’ well-being. It suggests that the traditional framework to analyze debt decisions should be enlarged to include social criteria. From a policy perspective, it states that local financial arrangements might have important comparative advantages over traditional microfinance products.