Aspects of Rural Households' Debt in India: Strategic Actions to Minimize Incidence of Informal Debt
This paper attempts to understand the nature and magnitude of rural indebtedness in India by analyzing periodical data. It also suggests enabling measures to minimize incidence of rural informal indebtedness and poverty within a time frame.
Since India introduced financial sector reforms in the early 1990s, commercial banks have been lukewarm in their response to achieving the mandated objectives of rural credit policy, which is to provide access to institutional credit and growth with equity. As a result, nearly 46 million farmer households have been financially excluded, and nearly 23 million have had to depend upon non-institutional agencies that charge them exorbitant interest rates. To reduce rural indebtedness, the paper recommends that rural financial institutions:
- Commit themselves to serving all households in a village;
- Initiate steps to establish financial literacy and credit counseling centers;
- Adopt technology applications;
- Make timely and judicious use of the Financial Inclusion Fund and Financial Technology Fund;
- Adopt the Mutual Code of Conduct.
The government could also consider creating an enabling environment and building rural infrastructure to facilitate rural financial institutions in serving all rural households.
