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Does anecdotal evidence on social impact always stack up?
At PRADAN, in India, the findings from an impact study confirmed some of the MFI's assumptions - for example that they were excluding both the wealthiest and the poorest people. The study also urged them to re-think a number of other assumptions. In particular, PRADAN had assumed that participation in their self-help group programme was leading to empowerment of women, based on anecdotal evidence from "winners", However, the survey findings did not support these expected changes, and revealed the that majority of women clients were not experiencing any significant changes in their status of self-esteem. This led PRADAN to undertake further research, which revealed that the technical background of many staff, as well as the focus on developing new livelihoods, meant that staff had mainly focused on economic improvements, and 'difficult issues' like domestic violence were not being discussed.
Source: Soundbites - Imp-Act Consortium

Statistics on Informal/Traditional Credit Markets

ICM References for India

Volume of Institutional and Non-institutional Credit in Urban and Rural Areas of India (1981-82)

All India HH           Rural (%)              Urban (%)
Asset Holding
(Rs. 000's)        Inst.   Non-Inst.      Inst.     Non-Inst.        

Upto 1 8.92 91.08 5.43 94.57 1-5 28.60 71.40 24.79 45.21 5-10 32.55 67.45 40.44 59.96 10-20 45.69 54.31 44.10 55.90 20-50 55.06 44.94 48.89 51.11 50-100 57.99 42.01 62.10 37.90 100-500 76.93 23.61 76.62 23.38 >500 94.90 5.10 66.87 33.13
All groups 61.21 38.79 59.95 40.05
Source: All India Debt and Investment Survey, 1981-82

Type of Informal Credit Suppliers found in India (including financial intermediaries):

  1. Chit Funds: These are indigenous rotating savings and credit organizations. While chit funds are prevalent among households and small businesses all over India, chit fudns are also organized by Chit Fund Firms, especially in South India , and are regulated by the Chit Fund Act.
  2. Finance Corporations: These institutions have activities essentially similar to commercial banks, except for non-issuance of cheques and no provision for fund transfer services.
  3. Hire Purchase Firms: Such firms are generally active in vehicle and durable finance, specializing in market segments not served by commerical banks. Most of such firms accept deposits from the public.
  4. Nidhis: These are single branch institutions similar to credit unions. They are mainly found in South India.
  5. Wholesalers and other Intermediaries: Such agents typically combine sale of goods with trade credit. The volume of finance is large relative to the total size of credit markets.
  6. Arartiyas or Commission Agents: They act as intermediaries between local and outstation sales in many commodity markets and provide financial acommodation to their clients. Their main role however is in reducing information costs of both buyers and sellers.
  7. Angadias: They play an important complementary role in facilitating fund flows between different centres at costs much below that of banks.
  8. Indigenous Bankers or Shroffs: These age old Indian institutions serve businesses, usually trade. They are grouped into various types (Multanis, Shikarpuris, Gujaratis, Shekhawatis, Rastogis, Marwaris, Kayas, Chettiars etc.) along community lines and operate in defferent parts of India. Among the major groups, chettiars in the south have almost disappeared.
  9. Brokers: There are a bewildering array of brokers in informal markets whose main and sometimes only role is informational. They link up potential borrowers and lenders for various purposes.
  10. Pawn Brokers: Found mainly in the South, they accept deposits and provide pawn finance. Estimates put the total volume o loans between Rs. 2.5 - 3 billion in 1979.
  11. Money Lenders: While not as wide spread as int he rural areas, they rely on their own capital and are to be found in all parts of India.
  12. "Piggy-Back" Intermediaries: Their essential characteristic being the close association with the formal credit markets. Along traditional lines, they are loan brokers who undertake to obtain bank loans in their own names for a fee.

1961: 83% 1971:71% 1981 39% of debt of rural households came from informal sources. Share of informal credit in urban areas is 30%. Informal money lenders covered 70% of farmers' credit needs.

Volume of lending by the non-corporate segment of the informal sector in India
(Rs. Crores)

Year       Finance        Indigenous Bankers      Total lending by the
         Corporations     and pawn broekrs        by the non-corporate segment

1979 554.9 2883.0 3437.9 1980 652.2 2883.0 3535.2 1981 749.5 2883.0 3632.5 1982 861.3 2883.0 3744.0 1983 989.8 2883.0 3672.8 1984 1137.3 2883.0 4020.3 1985 1307.2 2883.0 4190.2
Note: A crore is numerically equal to 10 million
Germidis et al. (1991)

Average Lending and Deposit Rates in the Indian Formal and Informal Sectors
(Per cent per annum)

1979 1984 Average Lending Rate Formal sector (banks) 16.5 18.0 (range) Informal sector 23.4 25.3 (16-28) (18-36)
Average Deposit Rate Formal sector (banks) 7.3 9.5 (range) Informal sector 13.7 15.5 (10-15) (11-22)
Spreads Formal sector (banks) 9.2 8.5 (1)-(2) Informal sector 9.7 9.8
OECD Development Centre case study on India

Share of Informal Credit in India
(per cent)
                                                   All          Rural           Urban

1. Proportion of Households/ adult individuals who borrowed from: - either/both sectors 27.73 (1972) - formal sector n.a. - informal sector n.a. 2. Proportion of borrowings from: - informal sector 80.28 (1972) - formal sector 19.72 (1972) 3. Proportion of households with outstanding debt owed to the informal sector 19.10 19.97 (1982) 17.36 4. Proportion of outstanding household debt owed to informal sector 38.8 40.1 5. Proportion of outstanding total debt (including enterprise debt) owed to the 42.3/56.6 informal sector

Ghate, 1990

Segmentation of Indian ICM:

The All-India Debt and Investment Surveys (AIDIS) present distributions of informal credit by six main lender types - landlords, agricultural moneylenders, traders, friends and relatives, and others. Clearly, whether the first three belong to different segments is an area-specific question which depends on the extent to which they specialize in catering to different borrower groups. In a rural credit market study of Kerala and Tamil Nadu states in south India, there were no landlord lenders, a reflection of the relative absence of tenancy in the area, and agricultural lenders lent mostly to agricultural laborers and to small farmers on thebasis of hypothecation of arecanuts and other crops. They were localized and less important as a source of credit than the rapidly growing number and variety of professional money lenders who lent more impersonally to a wider clientele mostly against the security of gold. Included in this category were finance "corporations", "banks" and "trusts", many of which were partnership firms registered as money lenders. This category of lending was partly agricultural, and was funded partly by deposits originating from remittances received from the Gulf countries. Lending by friends and relatives (the most important of the various sources in the sample villages) was fueled by remittances from the Gulf countries. Shopkeepers sold goods on credit. Finally there were rubber and vegetable traders who lent to farmers, and fish merchants who lent to fish vendors and fishing boat owners.

There is some flow of funds across segments of the market through onlending. An example of onlending across segements is provided by boat owners in Kerala state who receive credit from fish merchants and onlend (without interest) to crew members so as to ensure their availability in peak seasons of labour shortage. Other studies also note the case of a farmer who lent to his employees and borrowed in turn froma money lender. Village-leveltraders borrowing from larger traders located elsewhere and making crop production loans are almost universal. Onlending also takes place across two segments through lenders who operate in both segments. Thus money lenders make medium as well as short term crop loans, and also lend to their farm employees. Thirdly, agents and brokers facilitate the flow of funds between segments by possessing information on borrowers in various segments. Onlending here takes place between the trade credit segment and the crop loan segment.

Ghate, 1990

Hari Srinivas - hsrinivas@gdrc.org
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