IDEAS home Printed from https://ideas.repec.org/p/ind/igiwpp/2019-038.html
   My bibliography  Save this paper

Loan waivers and bank credit reflections on the evidence and the way forward

Author

Listed:
  • Sudha Narayanan

    (Indira Gandhi Institute of Development Research)

  • Nirupam Mehrotra

    (National Bank for Agriculture and Rural Development)

Abstract

In the past decade, farm loan waivers have become a policy instrument to alleviate financial distress of farmers. Despite agreement on the theoretical rationale for such debt forgiveness and its deep contextual relevance, many fear that in the long run, loan waivers might vitiate the repayment culture in the farm sector and undermine the financial status of banks. At present, implications of large-scale loan waivers rests on limited evidence, although empirical work in this area has been growing. This papers reviews and synthesizes existing research and available data on the implications of loan waivers, especially for the flow of credit to farmers from banks. This paper concludes that even if loan waivers are an inappropriate strategy to support farm incomes in sustainable ways, the wide-ranging negative impacts on the formal banking sector are perhaps overstated. The paper identifies areas that need further research and outlines possible ways forward in designing a debt relief policy.

Suggested Citation

  • Sudha Narayanan & Nirupam Mehrotra, 2019. "Loan waivers and bank credit reflections on the evidence and the way forward," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2019-038, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2019-038
    as

    Download full text from publisher

    File URL: http://www.igidr.ac.in/pdf/publication/WP-2019-038.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Paul R. Krugman, 1988. "Market-Based Debt-Reduction Schemes," NBER Working Papers 2587, National Bureau of Economic Research, Inc.
    2. Ministry of Finance, Government of India,, 2017. "Economic Survey 2016-17," OUP Catalogue, Oxford University Press, edition 2, number 9780199477661.
    3. Saptarshi Mukherjee & Krishnamurthy Subramanian & Prasanna Tantri, 2018. "Borrowers' Distress and Debt Relief: Evidence from a Natural Experiment," Journal of Law and Economics, University of Chicago Press, vol. 61(4), pages 607-635.
    4. Martin Kanz, 2016. "What Does Debt Relief Do for Development? Evidence from India's Bailout for Rural Households," American Economic Journal: Applied Economics, American Economic Association, vol. 8(4), pages 66-99, October.
    5. Xavier Giné & Martin Kanz, 2018. "The Economic Effects of a Borrower Bailout: Evidence from an Emerging Market," The Review of Financial Studies, Society for Financial Studies, vol. 31(5), pages 1752-1783.
    6. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    7. Ramakumar, R., 2013. "India’s Agricultural Debt Waiver Scheme, 2008," Review of Agrarian Studies, Foundation for Agrarian Studies, vol. 3(1), July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. MVK, Jagannath & Maitra, Debasish, 2023. "Do election cycles, political stability, and government effectiveness matter for the risk of banks? Evidence from Indian banks," Journal of Behavioral and Experimental Finance, Elsevier, vol. 39(C).
    2. Sowmya Dhanaraj & Vidya Mahambare & Pragati, 2021. "Are India’s farm debt waivers a political tool that impacts government finances?," Working Papers 2021-211, Madras School of Economics,Chennai,India.
    3. Muhammed Ahmed Ibrahim & Abubakar Adamu Magaji & Fatima Muhammad Abdulkarim & Salisu Yahuza, 2020. "Mediating Influence of Islamic Microfinance on agricultural Antecedents and Agribusiness Performance in Jigawa state, Nigeria," Technology audit and production reserves, Socionet;Technology audit and production reserves, vol. 6(4(56)), pages 35-40.
    4. Mahambare, Vidya & Dhanaraj, Sowmya & Mittal, Pragati, 2022. "The political budget cycles in the presence of a fiscal rule: The case of farm debt waivers in India," Journal of Policy Modeling, Elsevier, vol. 44(3), pages 701-721.
    5. Mukherjee, Atri & D., Suganthi & Kumar, Rishabh & Bajaj, Priyanka, 2023. "Effective Aggregate Support to Indian Agriculture," MPRA Paper 118321, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Aidt, Toke & Asatryan, Zareh & Badalyan, Lusine, 2024. "Political consequences of (consumer) debt relief," ZEW Discussion Papers 24-030, ZEW - Leibniz Centre for European Economic Research.
    2. Molnár, György & Berlinger, Edina & Dobránszky-Bartus, Katalin, 2021. "Lejárt tartozások fogságában [Overdue debt as a poverty trap]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 709-735.
    3. Edina Berlinger & Katalin Dobránszky-Bartus & György Molnár, 2021. "Overdue Debts and Financial Exclusion," Risks, MDPI, vol. 9(9), pages 1-20, August.
    4. André Albuquerque Sant’Anna & Lucas Costa, 2019. "Bailing out environmental liabilities: moral hazard and deforestation in the Brazilian Amazon," Documentos de Trabajo 17435, The Latin American and Caribbean Economic Association (LACEA).
    5. Sowmya Dhanaraj & Vidya Mahambare & Pragati, 2021. "Are India’s farm debt waivers a political tool that impacts government finances?," Working Papers 2021-211, Madras School of Economics,Chennai,India.
    6. Aidt, Toke & Asatryan, Zareh & Badalyan, Lusine, 2022. "Political consequences of consumer debt relief," ZEW Discussion Papers 22-049, ZEW - Leibniz Centre for European Economic Research.
    7. Lathaporn Ratanavararak & Sommarat Chantarat, 2022. "Do Agricultural Debt Moratoriums Help or Hurt? The Heterogenous Impacts on Rural Households in Thailand," PIER Discussion Papers 195, Puey Ungphakorn Institute for Economic Research.
    8. HONDA Tomohito & ONO Arito & UESUGI Iichiro & YASUDA Yukihiro, 2023. "Anatomy of Out-of-court Debt Workouts for SMEs," Discussion papers 23088, Research Institute of Economy, Trade and Industry (RIETI).
    9. Albuquerque Sant'Anna, André & Costa, Lucas, 2021. "Environmental regulation and bail outs under weak state capacity: Deforestation in the Brazilian Amazon11The authors gratefully acknowledge Antonio Ambrózio, Juliano Assunção, Arthur Bragança, Filipe ," Ecological Economics, Elsevier, vol. 186(C).
    10. Henry, Peter B. & Arslanalp, Serkan, 2003. "Helping the Poor to Help Themselves: Debt Relief or Aid?," Research Papers 1838, Stanford University, Graduate School of Business.
    11. Mahambare, Vidya & Dhanaraj, Sowmya & Mittal, Pragati, 2022. "The political budget cycles in the presence of a fiscal rule: The case of farm debt waivers in India," Journal of Policy Modeling, Elsevier, vol. 44(3), pages 701-721.
    12. Serkan Arslanalp & Peter Blair Henry, 2002. "Debt Relief: What Do the Markets Think?," NBER Working Papers 9369, National Bureau of Economic Research, Inc.
    13. Barbara Su, 2023. "Banking practices and borrowing firms’ financial reporting quality: evidence from bank cross-selling," Review of Accounting Studies, Springer, vol. 28(1), pages 201-236, March.
    14. Valérie Oheix & Dorothée Rivaud-Danset, 2009. "Why do firms borrow on a short-term basis ? Evidence from European countries," Working Papers hal-04140880, HAL.
    15. Khémiri, Wafa & Noubbigh, Hédi, 2020. "Size-threshold effect in debt-firm performance nexus in the sub-Saharan region: A Panel Smooth Transition Regression approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 335-344.
    16. Shaikh, Ibrahim A. & O'Brien, Jonathan Paul & Peters, Lois, 2018. "Inside directors and the underinvestment of financial slack towards R&D-intensity in high-technology firms," Journal of Business Research, Elsevier, vol. 82(C), pages 192-201.
    17. Nguyen, Thao & Bai, Min & Hou, Greg & Vu, Manh-Chien, 2020. "State ownership and adjustment speed toward target leverage: Evidence from a transitional economy," Research in International Business and Finance, Elsevier, vol. 53(C).
    18. ManYing Kang & Marcel Ausloos, 2017. "An Inverse Problem Study: Credit Risk Ratings as a Determinant of Corporate Governance and Capital Structure in Emerging Markets: Evidence from Chinese Listed Companies," Economies, MDPI, vol. 5(4), pages 1-23, November.
    19. Stolowy, Hervé & Jeanjean, Thomas & Erkens, Michael, 2011. "The economic consequences of increasing the international visibility of financial reports," HEC Research Papers Series 957, HEC Paris.
    20. Fulghieri, Paolo & Lukin, Dmitry, 2001. "Information production, dilution costs, and optimal security design," Journal of Financial Economics, Elsevier, vol. 61(1), pages 3-42, July.

    More about this item

    Keywords

    India; loan waiver; agriculture; debt; formal credit; default;
    All these keywords.

    JEL classification:

    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ind:igiwpp:2019-038. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Shamprasad M. Pujar (email available below). General contact details of provider: https://edirc.repec.org/data/igidrin.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.