Rural Credit Delivery in Maharashtra: Experiences with Formal and Informal Lending Institutions

This paper evaluates problems relating to the accessibility of credit to small and marginal farmers, focusing on the state of Maharashtra in India. The paper examines:

• The data and methodology of the study;
• Farmers' access to sources of credit;
• The relationship between consumption, production and human capital loans;
• Default rate and transaction costs;
• Borrowers' working experience with lenders;
• The processing of loan applications, the shortfall and the interest rates on loans;
• The role of collateral.

The paper concludes that:

• New generation lending institutions, such as self-help-groups (SHGs), show a high rate of interest on loan advances;
• Traditional lending institutions such as cooperatives and banks are deficient in human capital investment and consumption loans;
• They also exhibit high transaction costs and delay in the delivery of credit;
• Cooperatives are the dominant force in rural credit markets.

The paper recommends that:

• There is a need to focus on simplified loaning procedures, balanced sectoral development, sustainability and viability, operational efficiency and small farmer coverage, in order to improve the efficiency of credit delivery in Maharashtra;
• Formal credit institutions should introduce group responsibility to safe guard the interest of the overall rural community;
• Cooperatives need to be re-structured and strengthened to meet emerging challenges.