Credit divide

Gaps exist in rural finance access

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The latest Rural Sentiment Survey (of September), of the National Bank for Agriculture and Rural Development, captures, among other things, both progress and persistent fault lines in rural finance.

On the positive side, 54.5 per cent of the households surveyed now borrow exclusively from formal sources, the highest since the survey began last year. However, nearly 22 per cent of them remain dependent solely on informal credit. This segment continues to face high costs: Average interest rates are at 17-18 per cent, with one-third of the borrowers paying more than 20 per cent annually. About 24 per cent of the households depend on the combination of both formal and informal credit. Further, about 30 per cent of the households take loans from family and friends, paying no interest. Thus, even though banks have expanded their reach in rural areas, there is still a significant unmet demand for credit.