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Class–Caste Differences in Access to Agricultural Credit in India

Chirala Shankar Rao ( is with the Council for Social Development, Hyderabad.

Looking at the class and caste differences in access to agricultural credit in India, it is seen that large proportions of farmers are still outside the fold of formal credit. Farmers from smaller farm-size class and socially marginalised castes face difficulty in accessing credit due to lower asset valuations, compounded by social discrimination. There is a need for asset creation and reorientation of the present agricultural credit policy for greater inclusiveness.

The author is thankful to an anonymous referee of this journal for the valuable comments on an earlier draft of this article.

Credit is an important mediating input for agriculture to improve productivity. Strengthening formal credit is one of the important tools in the target set by the Government of India (GoI) in 2016 to double farmers’ incomes by 2022. The Union Budget 2017–18 announced a credit target of `10 lakh crore and 60 days of interest waiver on farmers’ loans from the cooperative credit structure (GoI 2017). The ratio of agricultural credit to agricultural gross domestic product (GDP) has increased from 10% in 1999–2000 to around 38% by 2012–13 (GoI 2016). The provision of credit is of vital importance in achieving social mobility for the population engaged in agriculture (Dantwala 1952). In India, around 86.4% of farmers are in the smaller farm-size category (≤ 2 hectare) and majority of them are from socially marginalised castes (NSSO 2014). While access to formal credit for the agricultural sector is crucial for its growth, the issue of inclusiveness in terms of class and caste in access to credit is also important.

Many studies clearly established the positive relation between easy access to credit by farmers and agricultural productivity in India (Binswanger and Khandker 1992; Das et al 2009; Bhalla and Singh 2010). Credit could enable a farmer to move on to a superior production frontier, so that at given level of inputs the farmer is able to produce more output (Narayanan 2015). Formal credit can be used to maximise the yield at a given level of capital stock. It can be used for building up capital stock—irrigation facilities, machines, and so on—and to replace informal credit associated with high interest burden.

The land size-based class, by virtue of the size of the land, tends to influence the access to credit from both formal and informal agencies. The bank officers carry out banking in the village through the rich farmers. Hence, it is not just the collateral that made the difference, but the access to the bank bureaucracy by large farmers (Kumar 2013).

The flow of agriculture credit has not been inclusive as the share of marginal and small farmers in agricultural credit disbursed has declined, and there has been a “non-inclusive” stance of commercial banks in disbursing credit towards marginal farmers (Mehrotra 2011). This has been happening despite the increasing capacity of marginal farmers to absorb credit compared to large farmers (Chand et al 2011). Farmers’ access to formal agricultural loans depends also on their caste. Few studies have indicated that higher castes are given more credit than the lower castes in India (Drèze et al 1997; Sarap 1990). While commercial banks do not discriminate against lower caste farmers in lending, cooperative banks do, as they are prone to interest group capture at the local level (Jodhka 1995; Kumar 2013).

However, there is a dearth of empirical studies that examine the present class and caste differences in access to agricultural credit in India. This article examines the class and caste differences in access to agricultural credit from both formal and informal credit agencies in India.

Data Sources and Methodology

This article uses unit-level data from
the Debt and Investment Survey of the National Sample Survey Office (NSSO), 70th round. Data on “cash loans” by households belonging to the self-employed in agriculture (does not include casual labour in agriculture) from rural areas whose land is above 0.1 hectare (27,768 sample households) is used for this analysis. We call these agricultural households (AHH) hereafter. Though AHHs obtain cash credit from various agencies, this analysis considers three most important credit agencies based on the proportion of loans: cooperatives, and scheduled commercial banks (SCBs), including regional rural banks as the formal credit agencies, and professional moneylenders (PMLs) as informal.

The class analysis is based on farm-size classification on the basis of “operated land” in hectares (marginal: 0.1 to 1.0, small: 1.1 to 2.0, semi-medium: 2.1 to 4.0, medium: 4.1 to 10.0, and large: above 10). The caste analysis is made between major caste groups in India—Scheduled Caste (SC), Scheduled Tribe (ST), and Other Backward Classes (OBCs) who are socially marginalised castes, compared to “Others” who are socially privileged.

Access to Agricultural Credit

The outreach of formal credit agencies in agriculture is still limited in India as only 20% of AHHs got loans from cooperatives and about 18% got loans from SCBs. The informal credit agencies dominate the agricultural credit market as majority of AHHs still depend on PMLs (22%), relatives and friends (17%), and others. Similar pattern continues in “proportion of total loans” where only 41% of total loans by AHHs are from formal agencies.

It is disturbing to note that both in terms of “proportion of AHHs who got loans” and “proportion of total loans received,” the AHHs from smaller farm size (up to semi-medium) and socially marginalised castes are relatively lagging behind in access to credit from the formal agencies (Table 1). The picture is slightly different in case of informal agencies, where the smaller farm-size class has relatively higher access; this is not seen for the the marginalised castes. Higher dependence on PMLs for credit by the smaller farm-size class results in higher exploitation since they charge higher interest rate.

However, the average amount of cash loan from credit agencies—per household and per hectare—depicts a different picture (Table 2). It needs to be mentioned that the average amount of cash loan per household seems to be high because it includes both previously unpaid and currently received loans. Governments have rescheduled crop loans because of prevailing agrarian distress and hence given the fresh loans irrespective of repayment of previous loans. The data illustrates that compared to informal agencies, the formal credit agencies lend higher cash loan amounts to all AHHs across farm-size class and caste groups.

The cash loan per hectare land from all the credit agencies (formal and informal) decreases as farm size increases, but increases as we go from socially marginalised (ST, SC and OBC) caste groups to privileged caste group (Other). So in terms of cash loan per hectare, credit agencies are seen to lend less to the AHHs from marginalised castes that indicates that caste based discrimination is prevalent in agricultural credit access in India.

Only around 18% of AHH loans across all the class and caste groups from formal agencies are long-term loans that can be used for capital asset creation such as land development, irrigation, buildings, new machines, and so on.

Interest Rates

Apart from the access and amount of credit, it is also important to look at the rate of interest on agricultural loans by the credit agencies across class and caste in India. Table 3 (p 17) shows that interest rate differences are minute in case of loan borrowed from formal agencies across farm-size class and caste groups except for AHHs from the SC group who pay slightly high interest (9%) on loans from SCBs. However, there appears substantial differences in interest rate on loans from informal agencies across both farm-size class and caste groups. The PMLs charge heavy interest rates (above 30% per annum) from both the smaller class and socially marginalised caste groups that leads to either unbearable burden on their uncertain and hard-earned income from agriculture.

Value of Land and Other Assets

The credit worthiness of a household inter alia depends on the value of owned land and other assets. The average owned agricultural land in hectares increases from socially marginalised castes (SC: 0.8, ST: 1.0, and OBC: 1.1) to the privileged caste (Others: 1.4). Surprisingly, the caste-wise differences are large by “per hectare land value” that increases sharply from socially marginalised castes to privileged castes; this is seen across all the farm-size classes (Table 4). Part of the reason may be due to differences in irrigation levels (56% for SCs and 60% for Others), soil quality, and so on. There are also remarkable differences in value of other assets such as agricultural machinery and implements, livestock and poultry, buildings, and transport equipment owned by AHHs between the caste groups among all the farm-size classes. Hence, it can be argued that the class–caste wise differences in access to credit by AHHs from both formal and informal agencies may be due to their lower owned-asset values compounded by social discrimination.


The access to credit for the agricultural sector has to be inclusive in reaching all the sections of society for it to be effective in increasing agricultural productivity, and for achieving inclusive growth. It is evident from the empirical analysis that the increasing formal credit to agricultural sector in India does not meet the conditions of inclusiveness. Large proportions of farmers (62%) in India are outside the fold of formal credit, depend more on informal agencies that charge heavy interest rate.

The farmers from smaller size class and socially marginalised castes are highly deprived in terms of access to credit from both formal and informal agencies. While the marginalised castes suffer from less amount of credit per hectare, smaller farm-size classes suffer more from high interest rates by informal agencies. A small proportion (18%) of the loans by AHHs from formal agencies are long-term based that are required for capital investment. The lower asset value compounded by the social discrimination could be the reason for the lower access of credit by farmers from smaller farm size and socially marginalised castes. This article advocates for asset creation and inclusiveness in formal agricultural credit policy.


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Updated On : 8th Jan, 2018


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