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Drivers for collateral and collateral substitutes: A study of rural borrowers in erstwhile Andhra Pradesh

Author

Listed:
  • Koride PADMAVATHI

    (Ramiah University of Applied sciences, Bangalore – 54, India)

  • L. GANESH

    (Professor, CHRIST (Deemed to be university), Banaglore – 29, India)

  • Paromita SANYAL

    (Florida State University, Texas, USA)

Abstract

Formal lenders widely accepted land collateral against loans. Those who were too poor to offer collateral, used collateral substitutes. Yet, both collateral and collateral substitutes are pointers to information asymmetry, where the lender did not know the borrower well enough. But in rural communities, lenders, aware of borrower types, might segregate borrowers into two categories, namely, honest and opportunistic. Quite expectedly, honest borrowers are exempt from offering collateral. Instead, they find personal guarantors substituting collateral. This study, based on face-toface interviews of 839 rural borrowers from four districts of Andhra Pradesh and Telangana states in Southern India, follows a systematic sampling, and investigates the drivers for collateral, and those for finding personal guarantors who substitute collateral. The study builds a lender, borrower payoff matrix, linking borrower type, and collateralization to the payoffs to both the parties therein.

Suggested Citation

  • Koride PADMAVATHI & L. GANESH & Paromita SANYAL, 2024. "Drivers for collateral and collateral substitutes: A study of rural borrowers in erstwhile Andhra Pradesh," Agricultural Economics and Rural Development, Institute of Agricultural Economics, vol. 21(2), pages 137-155.
    • Handle: RePEc:iag:reviea:v:21:y:2024:i:2:p:137-155
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    More about this item

    Keywords

    Collateral; collateral substitutes; loan guarantee; repayment strategies;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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