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Diary of a Moneylender

Debates about the role of the moneylender in the rural credit scenario tackle two conflicting images. One sees the moneylender as a resilient entity calling for his future involvement in the process of rural development, and the other sees him as an exploiter to be slowly weeded out. To get a more nuanced account of his role, a diary kept by a moneylender operating in a village in the Anantapur district of Andhra Pradesh is analysed here. Even a cursory reading of this diary gives rich details on the scale and importance of the transactions carried out by the moneylender. Through this diary, formal lending agencies, be they banks or microfinance institutions, which have plans to supplant the moneylender will gain rich insights into the role played by this ubiquitous entity.

Diary of a Moneylender

Debates about the role of the moneylender in the rural credit scenario tackle twoconflicting images. One sees the moneylender as a resilient entity calling for his futureinvolvement in the process of rural development, and the other sees him as an exploiter tobe slowly weeded out. To get a more nuanced account of his role, a diary kept by amoneylender operating in a village in the Anantapur district of Andhra Pradesh is analysedhere. Even a cursory reading of this diary gives rich details on the scale and importance ofthe transactions carried out by the moneylender. Through this diary, formal lendingagencies, be they banks or microfinance institutions, which have plans to supplant themoneylender will gain rich insights into the role played by this ubiquitous entity.


he moneylender is back in debates involving rural credit. The last two All-India Debt and Investment Surveys (AIDIS) show that the proportion of non-institutional debt in rural areas has gone up from 9.8 per cent in 1991 to 15.5 per cent in 2001, large proportion of which has been borrowings from the village moneylender. These debates tackle the two conflicting images of the moneylender – a positive image, which sees the moneylender as a resilient entity, calling for his involvement in the process of rural development and a negative image, which sees him as an exploiter, responsible for rural distress [Padmanabhan 1988; Sarap 1991; Seth 1955, Sharma, Shishir and Chamala 1998]. What is lacking in this debate is an examination of the issues from the moneylender’s point of view. To correctly identify the role of the village moneylender in future rural credit strategies, we need to examine purposes for which people borrow from him, identify any borrowing patterns, identify and analyse the changes in the borrowing patterns over the years and trace the causes for such a change. Data on all of this is very difficult to come by. This work is an attempt to fill that gap. The author had access to a diary maintained by a village moneylender from Anantapur district of Andhra Pradesh, in which recordings of his loan transactions for over 20 years were given. Using these diary entries, the borrowing patterns of those rural poor who borrowed from this moneylender from the year 1981 onwards, were analysed.

The moneylender is located in a village about 40 kms away from the district town of Anantapur in Andhra Pradesh. He is one of those landowners who practise moneylending along with farming. Anantapur district is known to be the second-most droughtaffected district in India. The village under examination has an average rainfall below 400 mm, irrigation was from a lone tank in its command area and a few wells. Farmers cultivated groundnut either as a mono-crop or as a mixed crop on rain-fed lands.

With the arrival of power-driven pump-sets, large areas were brought under well irrigation. With the arrival of borewell technology, geographical limitation placed by the traditional wells was overcome and more rain-fed land could be irrigated. Initially, inirrigated areas only paddy was cultivated. Farmers are nowexperimenting with sericulture, grapes, sunflower and papaya crops on the irrigated land.

The Diary

Borrowing patterns are examined from the diary-entries maintained by the moneylender. This is not a diary in the true sense as there are no chronological entries. Entries are made in the name of the borrower, his caste, date, amounts and the purpose for which they were lent. The diary has entries from 1981 to 2004. The name of the borrower is mentioned in several ways – a full name or a pet name. The purpose is recorded so that the moneylender can provide details of the loan if the borrower contests it. Once the loan is repaid, the entries are struck off, without mentioning the date of return. Lending in kind is also entered in this diary in the same fashion. The amounts lent are largely sums below one thousand, to agricultural labourers and his tenants. No written documentation is executed between the lender and borrower.

Borrowings are basically classified as borrowings for consumption and borrowings for production. The borrowings for consumption are further classified as health, food, culture, customs, and household assets. All the festivals observed throughout the year were included in the category of culture. All ceremonies associated with life such as puberty, marriage, delivery of a child and death were categorised as customs. Social necessities such as visiting relatives, giving gifts, and hosting a visitor were included as household activities. Household activities also included expenditure on repairing a house, fixing bulbs and so on.

Borrowings for production were classified into asset formation and management. Management included inputs for various processes from sowing to post-harvest activities. Manure sales and purchase were also considered. If the purpose of borrowings was undisclosed then that was treated as a loan for consumption. If foodgrains are borrowed for consumption, then they were treated as borrowings for food. If an advance is received assuring supply of labour whenever a call was made it was treated as wage advances.

Interest Charged on the Loans

Irrespective of nature of transaction, interest charged is two per cent per month. This was because there were specific castes that borrowed from this moneylender. People from other castes did not borrow from him. It did not mean that they did not need credit, but they borrowed from other sources. Obviously, the moneylender was scrupulous about lending to people he knew. He lent only to people with whom he had economic relations (his labourers, or tenants). Therefore it was quite alright for him to charge a fixed, pre-determined and modest interest rate. Since the borrower group was homogeneous there was no personspecific risk premium charged. If the borrowed money was termed “exchange” it denotes mutual help and no interest was charged. No interest was charged when a close relative borrowed.

Amounts Transacted

From a snap-shot of the diary for 22 years (Table 1), we see that borrowings for production exceed borrowings for consumption, both with regard to frequency and the amount borrowed. This goes against the commonly-held wisdom that the poor resort to moneylender, mainly for consumption and distressborrowings. In this case we see that the moneylender is lending an increasing amount (in cash and kind) for productive purposes like fertilisers, seeds and pesticides. Thus the argument extended for microlending – that lending, particularly at micro amounts as evidenced in this diary is more about access to financial services than about interest rates may be tenable.

The transactions in cash for the entire period entered in the diary are around Rs 6,00,000 and 60,000 kilos of grain. Of this, a greater proportion of cash is lent for inputs for various processes

(16.19 per cent) and for seeds (16.19 per cent). Inputs had highest borrowings in kind (77.71 per cent). The most common borrowing was seed in kind (20.72 per cent) and fertilisers (13.07 per cent). There were other borrowings in kind for various activities of agriculture.

Borrowings in Cash and Kind

Cash was borrowed 1,502 times from 1981 to 2004. Of this the largest instance of borrowing was within Rs 100 (Table 2). Highest percentage of borrowing instances (29.43 per cent) was within Rs 50 and for about 300 times (19.97 per cent) it was between Rs 51 and Rs 100.

Borrowings beyond Rs 1,000 are only 158 (10.52 per cent). This indicates that the range within which the poor have borrowed is within Rs 100. In almost 77 per cent cases the borrowings are within Rs 300. Most of the smaller loans are for purposes of consumption.

Borrowings in kind, mainly paddy and coconut, for consumption purposes (food and social occasions like marriage) reduced considerably since the late 1980s. The borrowing in kind that persisted was for fertilisers, which actually rose in the 1990s.

Groundnut is the main crop. There are problems in getting seeds for every crop season. The problem is intensified when the seeds formed are not capable of germination due to low rainfall. Those who cannot afford to purchase seeds borrow seeds from farmers or the moneylender on differing terms. If the borrowing is from the farmers who have stocks of seed, the borrower can pay back in good quality seeds, acceptable to the lender, at the rate of 1:2. If the moneylender refuses to accept seeds, then the repayment will be at cost with two per cent interest per month.

Borrowings in kind ranged from foodgrains to chemical fertilisers and pesticides. The borrowings show no definite pattern. The maximum borrowing is within 100 kgs (Table 3).

Borrowing within Each Category

Asset Formation

The borrowings for asset formation and management include purchase and repair of agricultural implements, draught animals, bullock carts, construction and repairs of dwellings, cattle shed and pump house. We see that in 98 cases borrowing was for assets formation and management. The total amount borrowed is Rs 31,484 (Table 4). There were no borrowings from the year 2001 onwards.

Interestingly, the number of borrowings shows an increase from 1988 onwards. An examination of the kind of assets for which money is borrowed after 1988 shows that borrowings are for purchase of land, draught animals and cows. Though this trend was present prior to 1988, the number was limited to one or two in a year and restricted to purchase of cows. Comparatively, the number of such borrowings increased after 1988. The amount borrowed went as high as Rs 16,000 for construction of wells in 1993. For purchasing land, the maximum amount borrowed was Rs 10,000 – by two individuals in 1993.

Table1: Details of Transactions from 1981 to 2004

Category No of Amount No of Amount
Entries (Per Cent)
Cash Kind (Per Cent) Cash Kind
(Rs) (Kgs)
Consumption loan
Asset 96 31,483 0 4.27 7.81 0.00
Culture 168 19,253 476 7.47 4.77 0.49
Custom 61 5,185 316 2.71 1.29 0.33
Food 248 28,575 4200 11.03 7.09 4.36
Health 150 17,114 53 6.67 4.24 0.06
Household 95 14,439 34 4.22 14.95 2.12
Marriage 42 38,818 1050 1.87 9.63 1.09
Production loan
Input process 313 60,293 2042 13.92 16.19 77.71
Input seeds 466 65,300 74885 20.72 16.19 77.71
Loan 119 69,194 292 5.29 17.16 0.30
Fertiliser 280 30,211 12595 12.45 7.49 13.07
Manure 39 6,375 158 1.73 1.58 0.16
Manure sales 34 3,482 20 1.51 0.86 0.02
Pesticide 64 5,538 2 2.85 1.37 0.00
Advance wages 74 7,989 240 3.29 1.98 0.25
Total 2,249 403,250 96363 100.00 100.00 100.00

Table 2: Range of Cash Borrowings

Frequency Per Cent

Rs 0-50 442 29.43 Rs 51-100 300 19.97 Rs 101-200 286 19.04 Rs 201-300 121 8.06 Rs 301-400 80 5.33 Rs 401-500 115 7.66 Rs 501-1000 97 6.46 Rs 1001-2000 28 1.86 Rs 2001-5000 24 1.60 Rs 5001-10000 7 0.47 Rs 10001 above 2 0.13 Total 1502 100.00

Table 3: Borrowings in Kind

Quantum (Kgs) Frequency Per Cent

0-10 155 19.47 11-20 63 7.91 21-30 44 5.53 31-40 36 4.52 41-50 171 21.48 51-100 179 22.49 101-200 86 10.80 >200 62 7.79 Total 796 100.00

Table 4: Number and Amount Borrowed

Year Amount Borrowed No (Rs) Average (Rs)

1984-1988 14 3,081 220 1989-1993 56 12,324 220 1994-1998 23 11,069 481 1999-2004 5 5,010 1,002 Total 98 31,484 321

Economic and Political Weekly July 21, 2007

This change in borrowing pattern reflects the changing needs and financial abilities of the borrowers post 1990s. In the 1990s, there were changes in the landholding pattern in this village. Due to out-migration of several landed families to nearby towns and cities, irrigated lands were given on lease to tenants, calling for larger investments in draught animals and cows – which reflect this change in the borrowing amounts. Groundnut was being cultivated on these lands and the fodder of groundnut helped in maintaining few cattle heads. The lands cultivated by the tenants also equipped them with access to parcels of land where they could rear more sheep and cattle.


The category of culture is inclusive of all religious activities that are performed by the borrowers. It can be festivals, poojas, and other religious ceremonies. Table 5 examines the amount borrowed both in cash and kind for cultural activities.

From 1981 to 2004, there have been 140 instances of borrowings reflecting an amount of Rs 19,753 and 27 instances of borrowing in grains amounting to 476 kgs. Borrowings in kind, mainly paddy and coconut has stopped from the year 1988. It is only cash transactions that have continued up to 2004. Even in that case, one observes that the number of individuals borrowing has seen a reduction from 1996. One of the reasons for there being no borrowings in kind after 1988 could be the policy of the government of AP to extend rice at Rs 2 per kg. Additionally, in the 1980s many of the irrigated areas especially under wells were leased out to tenants. This might have helped them to hold stocks of paddy at home, thereby reducing the need to borrow paddy for the festivals.


This category includes all those activities that borrowers perform within their family – life events such as birth, marriage, death and other ceremonies (Table 6).

An interesting observation is that most of the cash borrowings are largely within few hundreds and has not exceeded Rs 200. Since the custom of feeding relatives is involved in all such cases, borrowing grains is necessary if one does not have stock. As in the case of culture, apart from four stray instances of borrowing in kind way back in 1985, most of the borrowings for this purpose have been in the form of cash.


All cash borrowed to purchase foodgrains was examined in this category. The pattern of borrowing shows low borrowings followed by high borrowings for few years. Borrowings continue except for the years 1992, 1997, 1998 and 2004.

One of the ways in which this can be interpreted is that high borrowings could be in a year following a year of drought and low borrowings could be followed after a year of bountiful crop. According to a study, this region experiences more than five droughts in any given decade (APRLP). Analysis of pattern of borrowings of foodgrains confirms such an observation. Interestingly, in the drought years of 1999 and 2000 there were no borrowings; in contrast the drought years of 2002 and 2003 had borrowings. As the number of individuals who have borrowed was small, this can be neglected. As per the information provided by the farmers, drought in these two years affected the availability of groundwater and no food crops were raised. However, this did not increase borrowings, as the programme for employment assurance was in operation in this village for these two years. This points out to one of the direct benefits of such cash for work programmes – it puts cash into the hands of the rural poor in times of distress, thereby reducing their need to borrow cash from the moneylender.

However, we need to understand this data with the perspective of change in the cropping pattern. From the 1980s no millet crops are cultivated on rain-fed land. Paddy is being cultivated in the irrigated lands. Ragi and jowar are cultivated on irrigated lands in small areas between two crops of paddy. This is generally to meet the household consumption requirement. Therefore, arriving at a conclusion that only drought will impact borrowing of foodgrains may be erroneous. An attempt was made to examine the kind of foodgrains borrowed over the year. Interestingly, apart from jowar, the demand for ragi and paddy was there for all the years, but the grains demanded and the quantum demanded kept alternating between ragi and paddy. This uniform pattern of demand for foodgrains indicates lack of strong correlation between borrowings for food and incidences of drought. This may be due to total dominance of groundnut under rain-fed areas and production of these foodgrains only under irrigated conditions. Most of the rural poor have rain-fed lands, on which the major crop grown is groundnut. The rich own sources of irrigation, and paddy and other foodgrains are grown on irrigated lands. The poor therefore, have no option but to borrow foodgrains like paddy from the moneylender.

An attempt was made to examine the purpose for which cash was borrowed to meet food requirement. It was observed that 75 per cent of cash borrowings were for purchase of rations supplied through the public distribution system (PDS) (Table 7). This is a reflection of the inability of the poor to purchase foodgrains, even when it is offered at a lower price. It can also

Table 5: Borrowings for Cultural Activities over the Years

Year Borrowings Number (Rs) Average (Rs)

1981-1986 19 864 44 1987-1991 47 5,154 110 1992-1996 52 9,555 184 1997-2001 12 2,200 184 2001-2004 10 1,980 198 Total 140 19,753 141

Table 6: Borrowings to Perform Rituals

Year No Amount Borrowed Cash Average(Rs)

1984-1988 21 1,345 64 1989-1993 20 2,040 102 1994-1998 11 1,300 118 1999-2004 5 500 100 Total 57 5,185 91

Table 7: Purpose for Which Cash was Borrowedunder Category ‘Food’

Purposes for Which Borrowings Were Made under the Category “Food” Year PDS Kerosene Flour Mill Betel Leaf Coconut Chicken Health

1984-198815 1 2 0 2 0 1 1989-199313 0 2 2 1 0 0 1994-199850 0 0 0 1 0 1999-200330 1 0 0 0 0

be a reflection of the timings followed by the PDS. Thus we may be in a paradoxical situation where the price subsidy given for the purchase of foodgrains is possibly negated by the interest payments on borrowings, thus indirectly diverting the subsidies to where it was possibly not intended. Foodgrains are being supplied at a time when the target group may not have the required cash on hand. Instead of forgoing the quotas of grains that they are eligible for, the poor have preferred to go in for loans from the moneylender to buy them. The other purpose for which the amount is borrowed is for milling paddy into rice. This appears to be a reflection on the PDS. Either the supplied quantum might have fallen short or the poor may not have been able to purchase the grains when it is up for sale.

Rest of the borrowings though insignificant, are shown in order to point out to some of the severe compulsions that the poor have. The borrowings of cash for food needs have reduced almost totally from 1993 onwards and are absent from 1998 onwards. The reasons for this are to be found in the changes in the landholding patterns in this village, post the1990s. The poor now have access to patches of irrigated land on which paddy could be grown and stored for self-consumption. The employment assurance projects initiated in this village also put cash incomes in the hands of the poor.


The poor also borrowed from the moneylender for healthrelated purposes.

The number of borrowings under this category is 150 and the amount borrowed is Rs 17,114. Fifty-three kgs of grains were also borrowed in kind. Interestingly, there are very few borrowings in kind and they cease after 1987. Number of borrowers borrowing in cash increases till the year 1989. There are high cash-borrowings in 1992 and 1994 as well. The average borrowings are also higher compared to those for rituals. This indicates that the vulnerability to health contingency is not totally eliminated. In most of the cases, the borrowings are to visit a doctor. There are also a few cases where money is borrowed to overcome black magic. These borrowings for meeting health contingencies fall in line with findings in several studies of rural poverty, arguing that health is a major reason for the rural poor slipping back into poverty [Krishna 2003]. A recent paper [Banerjee and Duflo 2006] also summarises several surveys where the poor mention health as the major cause for stress.


All those borrowings made to meet expenses such as visiting relatives, house repair, paying electricity bills, purchase of clothes, payment of school fees, sending and bringing daughter/daughterin-law, hosting guests at home, were all included in this category (Table 9). A surprise item included “undisclosed personal expense” – often for consumption of alcohol. The major item of expenditure is for visiting relatives in other villages. This appears to be a social compulsion required to renew social relations. Unlike other categories, this category does not show change over the years.


Borrowings for agricultural activities have been captured as borrowing for seeds, for purchase of fertilisers and pesticides. All the borrowings were to perform other activities such as paying wages for labourers, sowing, weeding, harvesting and postharvest activities are captured as single area called “input for agricultural processes”.

Seeds, Agricultural Inputs, Fertilisersand Pesticides

Seeds are essential inputs in farming and they have occupied an important place in the transactions. An examination of the pattern of borrowing shows that over the years borrowings in terms of cash was more than borrowing in kind. Quantum of borrowings in cash for purchase of seeds became predominant when farmers preferred to go in for sericulture in 1985 and sunflower in 1996. Prior to cultivation of sericulture and sunflower the demand for loans was only for seeds of paddy, groundnut, ragi and other crops, where the seeds were available with the moneylender. Seeds selected from previous crops were distributed as loan. Borrowers were supposed to return seeds twice the quantum received. However, this process underwent a change when high yielding variety (HYV) seeds of groundnut were introduced in 1991 and sericulture was also introduced into this region. Poor farmers then had to borrow heavy amounts, as these seeds have to be procured from an outside agency. With planning for two crops of sunflower, the amounts borrowed by each farmer in a year also increased. When large number of farmers opted for sunflower in 2003, the demand for credit had increased several folds. In that year, farmers had raised three crops of sunflower. Even after such a change, farmers continue to borrow seeds in kind for paddy, groundnut and ragi crops. The demand for loans increased tremendously from 1988 onwards due to release of irrigated lands to tenants.

The agricultural workers who became tenant farmers had no capital to meet all the expenses. This compelled the new farmers to borrow for every activity concerned with farming. Such demands increased after the introduction of sunflower.

Since chemical fertilisers have to be procured from an outside agency, farmers who have no financial capability to borrow money to purchase chemical fertilisers borrow in kind from the moneylender. Examination of borrowings of fertilisers shows that after 1996 quantum of cash drawn to purchase fertilisers and borrowing fertilisers has almost doubled. This is due to introduction of sunflower in the region. All those who went in for

Table 8: Borrowings for Health Contingency

Borrowings for Health
Year Number (Rs) Average (Rs)
1983-1987 33 1,322 40
1988-1992 60 6,247 104
1993-1997 35 6,495 186
1998-2002 14 1,450 104
2002 7 1,500 214
2003 1 100 100
Total 150 17,114 114

Table 9: Borrowings for Household Requirements

Cash Borrowings for Household Purposes
Year Number (Rs) Average
1984-1988 22 1,067 49
1989-1993 36 6,415 178
1994-1998 16 2,375 148
1999-2004 21 3,283 156
Total 95 13,140 138

Economic and Political Weekly July 21, 2007


Figure: Total Cash Borrowings for Agriculture

3,500 3,000 2,500 2,000 1,500 1,000 500 0 Seeds

1985-1989 1990-1994 1995-1999 2000-2004




sunflower had to borrow high quantum of fertilisers. Along with sunflower introduction of HYVs in paddy has also increased demand for fertilisers.

The average utilisation of chemical fertilisers increased after 1996. It was low as long as paddy was cultivated. Farmers who are very poor depend on the moneylender to supply fertilisers as they lack knowledge on inputs, especially various types and purposes for which they have to be utilised. Additionally, the other constraint on them is the quantum. Many dealers may not sell the small quantum required by the poor. Moneylenders take on the role of input traders by buying in huge quantities and lending it to the farmers. Those farmers who have the knowledge on various inputs and require fertilisers in bulk borrow cash rather than borrowing in kind.

An attempt was made to compare borrowings for purchase of manure with that of chemical fertilisers. It was observed that borrowing cash to purchase manure increased up to 1996 but later declined, and picked up from 2002. Utilisation of manure saw a sudden increase from 1988 due to introduction of sericulture crop and release of irrigated land to tenants for paddy cultivation. However, arrival of sunflower had a negative impact on use of manure.

Pesticides are part of modern day agriculture as are seeds and fertilisers. Pesticides were introduced for mulberry and for HYV paddy. Later, it was utilised even for other crops such as groundnut that were not traditionally sprayed with pesticides. The utilisation of pesticides increased with more area under HYV paddy and sunflower.

Borrowings in kind persist in agriculture, especially for procurement of seeds, fertilisers and other agricultural inputs.

Changes in the Borrowing Pattern

From the entries in this diary, we see that over a period of 20 years two major patterns emerge regarding borrowings from this moneylender. There is a decline in borrowings for consumption purposes (especially for culture, customs and food) and rise in the borrowings for production purposes (buying seeds, fertilisers and pesticides). To analyse the reasons for these patterns, we have to look at both – the internal factors relating to production, land use pattern and changes in the social structure of the village, and external factors relating to changes in policy and operation of government schemes in this village.

Changes in the Production and Land Use

One of the major changes observed in this village is the increase in number of tenants both under irrigated and un-irrigated conditions. The dominant landowning caste group – the Reddys, were the first to lease out land for tenants, initially, land under rain-fed conditions and later on, land under irrigated conditions as well. Migration appears to be the major factor in leasing out land. Due to frequent drought and poverty, many of the poorer families have migrated in search of jobs, preferring to lease out their small patches of land to the landless. Loss of working hands, especially the youth, has also influenced leasing out. One hundred and eighty four farmers benefited from such leasing out. In the 1980s the tenants were limited to rain-fed land, however, from 1991 even irrigated lands were leased out. Nearly 65 tenants are cultivating 283 acres of irrigated lands. Areas under tenancy have increased, and at present tenants cultivate 116 acres out of 283 acres of irrigated land (Table 13). This increase in number of tenants changed the relations between the landowners and tenants and between cultivating farmers and the tenants.

The changeover to tenancy had a mixed impact on the borrowing conditions of the poor. Cultivation of groundnut on the tenanted land helped the rural poor to acquire lump sum incomes at the end of cropping season. These incomes did help in preventing the tenant from going to the moneylender for smaller

Table 10: Borrowings for Inputs

Year Seeds Agricultural Inputs Fertilisers Pesticides Number (Rs) Number (Rs) Number (Rs) Number (Rs)

19851 50 1 10 1 400 NA NA 19864 46 4 63 1 210 113 1987 4216 5 36 1 650 1200 1988 3 113 11 105 3 170 3125 1989128018 76 2 150 1 20 1990 4 94 14 178 3 147 3392 1991 6365 18 174 1 870 1 60 1992 11 319 18 173 1 450 6 575 1993 6 350 32 225 2 300 3101 1994 9 444 15 259 1 635 8445 1995 5 476 12 173 1 300 3205 1996 10 398 29 261 13 417 7 847 1997 5 607 19 261 5 360 6450 1998 7 589 7 314 7 506 2260 1999 5 268 25 193 2 120 4315 2000 6 476 23 157 8 349 4340 2001659911 157 8 457 0 0 2002 6 517 27 146 6 320 7880 2003 17 1,151 16 278 10 389 4 310 2004 9 328 6 333 4 398 NA NA

Table 11: Borrowings to Meet Various Processes in Agriculture

Average (Per Person) Cash Borrowings for Agriculture (Rs) Seeds Agr Inputs Fertilisers Pesticides

1985-89 54 7 198 60 1990-94 44 10 300 75 1995-99 73 13 61 94 2000-04 70 13 53 102

Table 12: Borrowings in Kind for Agriculture (kgs)

Seeds Fertilisers Agr Inputs

1985-1989 6,382 190 1,183 1990-1994 10,891 349 50 1995-1999 10,642 434 578 2000-2004 9,207 332 232

Table 13: Irrigated Area under Tenancy

1970s 1970-80 1980-90 1990-2000 >2000 Total

No of wells 1 14 18 17 50 Area irrigated 0 6 84 106 87 283 No of tenants 0 0 15 35 15 65 Area irrigated by tenants 0 0 19 65 32 116

amounts, especially for consumption purposes. With cultivation of pulses and millets, tenants had access to food items, reducing their borrowings for food. The fodder of groundnut helped in maintaining cattle, since the tenant now had access to parcels of land where one could rear more sheep and cattle. In this village, tenancy is closer to five acres for rain-fed lands and one acre under irrigated conditions. Of the 1885.25 acres of cultivable land in the village, tenants cultivate 474.5 acres of land. If the landowner invests on seeds, fertilisers and pesticides, the tenant has to pay an interest of 2 per cent on the amount per month, which will be deducted when the sales are made, or after the harvest. Of late, tenants have started investing in these inputs themselves to avoid paying interest to landowner. Therefore, we notice that the production-related credit by the moneylender is on the rise. Borrowings for inputs increased after the tenants accessed irrigated land, as the number of crops to be cultivated in a year was more than two. Compared to the number and kind of borrowings prior to cultivation of irrigated lands, number of borrowings after cultivating irrigated lands has increased. This can be clearly seen in case of inputs such as fertilisers and pesticides and inputs for various processes in agriculture.

This change in the land-cultivation patterns follows an Indiawide trend, where the proportion of the landless households leasing in land has increased from 28 to 35 per cent from 197172 to 1992 (NSSO, 48th round). This phenomenon of “reverse tenancy” is found to be operating on a larger scale than what is being captured by official statistics and has important implications for the rural credit markets. Since these tenants now have access to cultivable lands, they require agricultural inputs like seeds, fertilisers and pesticides. Borrowings from the formal sources like banks and primary agricultural cooperatives require a formal title to the land. Therefore, they have to resort to borrowing from the informal sources like the moneylenders. And this has resulted in the moneylender in the rural areas also playing a key role in borrowings for production.

Land Released to Landless from Government

Under programmes to equip the landless with land, the government of Andhra Pradesh has released government land. So far 510.99 acres of land has been released to the landless. Of them the biggest beneficiaries are all those caste groups that belong to the backward community (BC) (71.62 per cent), scheduled caste are able to get 130 acres of land (25.44 per cent) and others about 15 acres of land. The release is highest in between 1970 and 1980 (319.69 acres). About 105 acres of land was released in 1980 which happens to be the biggest chunk. These releases enabled many landless and marginal farmers to gain land. Such gains helped the landless to move on to the category of a farmer, which is also responsible for increased productionrelated borrowings from the moneylender.

Employment Assurance

An important intervention under the watershed development scheme was the employment assurance by the government of Andhra Pradesh. This scheme was implemented through an NGO (Rayalaseema Development Trust (RDT)) from 1997. The objective of the scheme was to utilise the activities within watershed development programme to create employment opportunities. This programme was in operation for nearly seven years and its activities; especially placing pebbles within each


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    Economic and Political Weekly July 21, 2007

    field to create gully plugs and bunds helped the marginal farmers and others to find employment. Experimentation in the first year to build bunds and check dams did not find favour among the villagers, as that did not help those who were in need of employment especially in the summer months. At the commencement of the second year in the stakeholders workshop, farmers and the labourers preferred to clear pebbles in the fields rather than indulge in construction activities. An amount of Rs 10,21,538 is spent exclusively on this activity. Approximately, 8,513 mandays of employment were generated in a year. This seems to have had an impact on the economic conditions of those who depend on earnings as agricultural labourers. Such employment increased the cash income of the poorer families and prevented the poor from borrowing smaller amounts from the moneylender.

    Increase in Irrigated Area

    One of the most important interventions that had an impact on availability of employment opportunities for the poor is increase in area irrigated by wells. From barely six acres in the 1980s, it increased to 237.5 acres by end of 2004. As the number of crops to be irrigated was more than two, the employment opportunities of the poor increased. The crops cultivated under these irrigated areas were largely paddy, jowar or ragi till 1996. Sunflower later on dominated these irrigated areas from 1996. In the in-between years few attempted to cultivate vegetable crops. Since these crops tend to be more input-intensive, it did have an impact on the borrowing patterns of the poor.

    Social Factors

    The reason for preferring tenancy and leasing out was migration of almost all the educated youth from the upper castes to urban areas in search of employment opportunities. Unable to manage the holding on their own, these communities preferred tenants. In case of SC, as more and more land is available for tenants and for leasing, they stopped migrating to urban areas during drought. The other reason for preferring tenants and leasing out was scarce availability of labour during the peak seasons. Such a situation compelled the aged landowners to prefer tenants or to lease out their lands. Irrigated areas were also being leased out in the 1990s due to similar reasons. With availability of more land under tenancy and leasing, agricultural labourers tried to own instruments of production such as a pair of bullocks or animals for ploughing, plough and other instruments, which is reflected in the borrowing patterns.


    Analysis of the moneylender’s diary throws up important clues about the pattern of informal borrowings in a typical Indian village. Over two decades, about 76.53 per cent of borrowings are within Rs 300 and nearly 30 per cent of the borrowings are within Rs 50. However, the diary also points to a gradual decline in demand for smaller amounts reflecting probably the change in the economic position of the borrowers – agricultural labourers becoming tenant farmers, as lands got increasingly leased out to them. This is also seen in the growing share of productionrelated credit in the diary entries of the moneylender. Borrowings in kind, except that of seeds declined. The highest percentage of the borrowing in kind (34.72 per cent) was in the form of seeds and materials to carry out other activities connected with agriculture. This further reiterates the role of the moneylender in satisfying the production needs of the rural borrowers.

    The two crucial periods, i e, 1988 and 1996 are indicative of changes that have taken place within this village, which affect the borrowing patterns. Firstly, in the beginning of the 1980s, 18 Reddy families, who were controlling almost 20 per cent of land within the village, were forced to lease out lands to tenants. Such a release empowered the poorest of the families especially the landless. This decision was complemented by the release of land from the government to the landless. However, this leasing out of land to the landless had mixed impact on the borrowing patterns from the moneylender. The poor acquired incomes in cash and kind at the end of the cropping season, which reduced their dependence on the moneylender for small amounts. The tenant had access to parcels of land where he could rear more sheep and cattle. Introduction of rice at Rs 2 per kilogram helped to meet at least partly the food requirement of the family. But, if tenancy has reduced borrowings in terms of foodgrains, it has increased borrowings of tenants for all the inputs for farming. There was a greater dependence on the moneylender for bigger amounts and production-related credit.

    This analysis clearly demonstrates the process of converting landless labour into peasants. Formal lending agencies, be it banks or microfinance institutions, aiming to supplant the moneylender in the rural credit scene, should learn from the rich insights that this diary has to offer.



    [Somashekhara Reddy was a research fellow at Indian Institute of Management Bangalore. This was a research project he had undertaken as a part of the Sir Ratan Tata Trust Fund for Research Collaborations in Microfinance instituted at the Indian Institute of Management, Ahmedabad. Somashekhara Reddy unfortunately passed away due to a cardiac problem in 2006. This paper is culled out of the work-in-progress report submitted by him. It was also presented at the second annual conference on Public Policy and Management (April 12-14, 2007) at IIM, Bangalore.]


    Bannerjee, Abhijit and Esther Duflo (2006): ‘Economic Lives of the Poor’, MIT Poverty Action Lab Working Paper, October. Krishna, Anirudh (2003): ‘Falling into Poverty: Other Side of Poverty Reduction’, Economic and Political Weekly, February 8. Padmanabhan, K P (1988): Rural Credit: Lessons for Rural Bankers and Policymakers, Intermediate Technology, London. Reserve Bank of India (1954): All India Rural Credit Survey, Reserve Bank of India, Mumbai.

    – (1969): Report of the All India Rural Credit Review Committee, Reserve Bank of India, Mumbai.

    Robinson, M A (1991): ‘Evaluating the Impact of NGOs in Rural Poverty Alleviation: India Country Study’, ODI Working Paper No 49, Overseas Development Institute, London.

    Rudra, A (1982): Indian Agriculture: Myth and Reality, Allied Publishers, New Delhi. Sarap, K (1991): Institutional Agrarian Markets in Rural India, Sage Publications, New Delhi. Seth, M L (1955): Indian Moneylender in Pre-British Times, The Punjab University Research Bulletin No XV.

    Sharma, Shishir (1998): ‘Image of Moneylender: Exploiter or Servant of the Poor? Case for Review’, Journal of Rural Development, Vol 17, October-December, No 4, pp 567-618.

    Sharma, Shishir and S Chamala (1998): ‘Moneylender and Banker in Rural India: The Images from Below’, Savings and Development, No 1, 1998-xxii, pp 106-28.

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