Determinants of indebtedness and institutional credit to rural agricultural households: an empirical evidence from South India

Purpose - This article attempts to understand the pattern of credit (loan) among agricultural households and identify the correlates of their access to institutional credit for policy imperatives. It also focuses on the inclusivity of institutional credit and debt pattern in terms of outstanding loan in the southern region of India. Design/methodology/approach - This study employs the Tobit model along with the Heckman selection model to study the impact of various factors on the institutional borrowing and the amount outstanding. Findings - The findings reveal that the access to credit is strongly associated with the socio-economic and demographic characteristics of agricultural households in South India. Asset position of households and size of holding are positively related with the probability of household having access to institutional credit. Education and family size are also found to be associated with higher access to formal credit. On the other hand, the socially disadvantaged households have lower access to formal credit. Similarly, other variables – assets, holding size and education – are associated with higher credit per household. Research limitations/implications - The findings indicate that the strategies to develop agriculture in southern India must encompass efforts to bring the small and marginal farmers under the coverage of institutional credit. Originality/value - There are very few studies that have explored the credit access in South India from the perspective of land class despite the government’s attempts to include small and marginal farmers in the ambit of formal financial services.