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Review of Literature: Chapter-2

This section reviews several studies conducted on loans provided by banks to different sectors of society. Okoria (1986) identified factors like the nature and timing of loan disbursement, profitability of the loan recipient's enterprise, and number of supervision visits after disbursement as influencing loan repayment. Binswanger and Khandker (1992) found that expanded rural finance had a smaller output and employment effect in farming compared to non-farming, with high capital investment substituting for agricultural labor more than increasing crop output. Puhazhendi (2011) argued that India has made significant progress in expanding its institutional credit structure for agriculture over decades, with an extensive banking network now providing at least one credit outlet for

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97 views5 pages

Review of Literature: Chapter-2

This section reviews several studies conducted on loans provided by banks to different sectors of society. Okoria (1986) identified factors like the nature and timing of loan disbursement, profitability of the loan recipient's enterprise, and number of supervision visits after disbursement as influencing loan repayment. Binswanger and Khandker (1992) found that expanded rural finance had a smaller output and employment effect in farming compared to non-farming, with high capital investment substituting for agricultural labor more than increasing crop output. Puhazhendi (2011) argued that India has made significant progress in expanding its institutional credit structure for agriculture over decades, with an extensive banking network now providing at least one credit outlet for

Uploaded by

Juan Jackson
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© © All Rights Reserved
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Chapter-2

REVIEW OF LITERATURE

In this section, an effort is made to review some of the studies conducted so far
with respect to the loan provided by the banks towards the various sections of the
society.

Okoria (1986) identified some factors that have effect on loan repayment. These
are nature and time of disbursement, profitability of loan receiving enterprise and the
number of supervision visits by credit officers after disbursement.

.Odoemenem (1991) identified production expansion as the primary motivation


of farmers for borrowing. Others attributes were profit optimization and improved
family standard of living.

Binswanger and Khandker (1992) found that the output and employment effect
of expanded rural finance has been much smaller in the farming sector than in the
nonfarm sector. The effect on crop output is not large, despite the fact that credit to
agriculture has strongly increased fertilizer use and private investment in machines and
livestock. High impact on inputs and modest impact on output clearly mean that the
additional capital investment has been more important in substituting for agricultural
labor than in increasing crop output.

Nweze (1994) remarks that objectives of cooperative associations are to pool


capital resources, labor for farm work, provision of financial assistance to members in
need and community development. In these associations, information asymmetries
between borrowers and lenders are unimportant, and their institutional consequences,
the use of collateral and interlinked contracts, are absent.

Badru (1997) made clear through his study that there is a need for governments
in developing countries to resolve the problems of poverty and agricultural decline in
rural areas. The means of achieving this is through the revitalization of the agricultural
sector.

Pitt and Khandker (1998) evaluated the impact of micro-finance. As a relatively


new phenomenon, the expansion of micro-finance lending is amenable to randomized
and quasi-experimental allocations of credit, spatially or across time.

Puhazhendi and Jayaraman (1999) studied about the financial sector reforms,
sustainability, viability and operational efficiency of Rural Financial Institutions
(RFIs). The major problems plaguing the efficiency of rural credit delivery system
were the mounting over dues and Non-Performing Assets (NPAs) of RFIs. The overdue
problem of different entities of rural credit delivery structure was reported to be an allpervasive phenomenon that cuts across these different agencies

Mohan (2004) while reviewing performance of agricultural credit in India


indicated that though the overall flow of institutional credit has increased over the
years, there are several gaps in the system like inadequate provision of credit to small
and marginal farmers, paucity of medium and long-term lending, etc. These have major
implications for agricultural development as also the well-being of the farming

community. He, therefore, suggested that efforts are required to address and rectify
these issues.

Burgess et al. (2005) who studied spatial and chronological variation in a bank
branch-expansion program that in India from 1977 to 1990. They observed that the
expansion of banks in rural areas significantly reduced poverty.

Mohan (2006) examined the overall growth of agriculture and the role of
institutional credit. Agreeing that the overall supply of credit to agriculture as a
percentage of total disbursal of credit is going down, he argued that this should not be
a cause for worry as the share of formal credit as a part of the agricultural GDP is
growing. This establishes that while credit is increasing, it has not really made an
impact on value of output figures which points out the limitations of credit.

Satish (2006) reviewed the distress in agriculture in Punjab. He observed that


since the nationalization of banks and the green revolution, institutional credit for
agriculture has grown in Punjab. But the growth had not been uniform and in line with
the demand for such credit. Indebtedness has also increased in the state, but a large part
of the debt has been for non-productive purposes.

Goliath (2007) attempted to analyze the issues in agricultural credit in India.


The analysis revealed that the credit delivery to the agriculture sector continues to be
inadequate. It appeared that the banking system is still hesitant on various grounds to
provide credit to small and marginal farmers. It was suggested that concerted efforts
were required to augment the flow of credit to agriculture, alongside exploring new
innovations in product design and methods of delivery through better use of technology
and related processes.

Pardey (2007) argued that agricultural capacity to produce more productive


technologies are at the heart of long- run agricultural growth. Such few technologies
triggered the Green Revolution in Asia, and in light of the limited potential for land
expansion in Sub-Saharan Africa such inventions are also strongly needed for African
farmers. Due to the heterogeneity of the countries and differences with, say, Asian
countries, crops that have been planted into these regions might not be appropriate for
Africa. Technological spillovers from high-income countries to low-income African
countries are unlikely. Moreover, regional differences are large within the continent
and prevent technology spillovers among African countries.

Sreeram (2007) concluded that increased supply and administered pricing of


credit help in the increase in agricultural productivity and the well-being of
agriculturists as credit is a sub-component of the total investments made in agriculture.
Borrowings could in fact be from multiple sources in the formal and informal space.
With data being available largely from the formal sources of credit disbursal and
indications that the formal credit as a proportion of total indebtedness is going down,
it becomes much more difficult to establish the causality. He also stated that the
diversity in cropping patterns, holding sizes, productivity, regional variations make it
difficult to establish such a causality for agriculture or rural sector as a whole, even if
one had data.

Golait (2007) has found that despite the significant strides achieved in terms of
spread, network and outreach of rural financial institutions, the quantum of flow of
financial resources to agriculture continues is inadequate.

Gulab and Reddy (2007) studied the indebtedness of farmers in Andhra Pradesh. It was
reported that 70 percent of the farmer households were dependent on informal sources
(mainly money lenders) for their credit needs.

Barah and Sirohi (2011) has studied on agrarian distress and revealed that
indebtedness is one of the factors linked with farmers suicides on account of crop
failure and related issues. This situation brings out the fact that the existing institutional
arrangement for credit delivery is not adequate and suitable to address the agrarian
distress in the country.

Kale (2011) found that low productivity, low annual income, existence of
income liability gap, indebtedness and availing of non-institutional credit were proved
as important causes of suicide in Maharashtra.

Puhazhendhi (2011) argued that the need for increased institutional credit for
agriculture, the Government of India initiated a series of policy measures since
independence of the country. As a result the institutional credit structure in the country
has shown a significant growth both in volume and complexity over the past few
decades. At present there is an extensive banking infrastructure comprising 33,411
rural and semi urban branches of commercial banks, 14501 branches of Regional Rural
Banks, around 12000 branches of District Central Cooperative Banks and nearly 1,
00,000 cooperative credit societies at the village level which translates into at least one
credit outlet for about 5000 rural people or 1000 households. This is remarkable and
extensive network.

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