TY - JOUR
T1 - The Curious Case of Farmer Credit Cards
T2 - Evidence from an Indian Policy Reform
AU - Chatterjee, Somdeep
N1 - Funding Information:
In a way, KCC provided the best available source of personal credit to poor farmers. The biggest advantage over micro-finance institutions was that KCC was operational through formal banks and charged a very reasonable interest rate of around 7% per annum as opposed to rates as large as 36–40% charged by self-help group microcredit institutions. As per IMF estimates, the average lending rate in India around 1998 was 13% per annum for private formal credit.1 KCCs not only provided a better alternative to informal sources of credit but also a source of cheaper formal credit. As a result, another motivation for effects of KCC on production would be access to cheaper credit sources. However, the empirical evidence is weak in this regard, and based on the exercises that follow, one can safely conclude that any effects of KCC on production are unlikely to operate through this channel. This claim is supported by the later finding that KCC does not lead to a reduction in average interest rates faced by households, using the empirical framework that follows.
Funding Information:
The second dataset is the Indian Human Development Survey (IHDS)-2005. The first official release of the survey was in 2008 for a survey conducted in 1,503 Indian villages and 971 urban neighbourhoods in 2005. The data in this edition of the survey are based on respondents interviewed in 2005. It was jointly conducted by a team from the University of Maryland, US and the National Council of Applied Economic Research (NCAER), India. The 2005 survey covered 41,554 households and compiled responses from two interviews, each of which lasted for an approximate duration of 1 h. I have a wide range of outcome variables like loan and debt details, source of borrowing, etc. I focus only on the rural sample and exclude the urban households, which yields a sample of 26,734 households.
Publisher Copyright:
© 2019 Walter de Gruyter GmbH, Berlin/Boston.
PY - 2019
Y1 - 2019
N2 - In this paper, I study India's Kisan (farmer) Credit Card (KCC) program and end up with an apparently counter-intuitive finding. Exploiting plausibly exogenous variation in the reach of the program and using a district panel dataset, I find evidence of increases in agricultural output of rice, which is the major crop of the country. I also find that on average the use of high-yielding variety seeds increases at the district level, providing suggestive evidence of technology adoption. However, there is no evidence of higher borrowing among households in response to this policy. Although there is evidence of increased borrowing among the unconstrained borrowers, this suggests that KCCs did not provide new access to credit. Yet, large increases in production can be observed. Although apparently puzzling, the findings may be explained in terms of the changing risk tolerance of farmers who may perceive KCCs as supplementary self-insurance products.
AB - In this paper, I study India's Kisan (farmer) Credit Card (KCC) program and end up with an apparently counter-intuitive finding. Exploiting plausibly exogenous variation in the reach of the program and using a district panel dataset, I find evidence of increases in agricultural output of rice, which is the major crop of the country. I also find that on average the use of high-yielding variety seeds increases at the district level, providing suggestive evidence of technology adoption. However, there is no evidence of higher borrowing among households in response to this policy. Although there is evidence of increased borrowing among the unconstrained borrowers, this suggests that KCCs did not provide new access to credit. Yet, large increases in production can be observed. Although apparently puzzling, the findings may be explained in terms of the changing risk tolerance of farmers who may perceive KCCs as supplementary self-insurance products.
KW - agricultural credit
KW - borrowing and lending
KW - Kisan Credit Cards
KW - risk tolerance
UR - http://www.scopus.com/inward/record.url?scp=85060050893&partnerID=8YFLogxK
U2 - 10.1515/bejeap-2018-0048
DO - 10.1515/bejeap-2018-0048
M3 - Article
AN - SCOPUS:85060050893
SN - 1935-1682
VL - 19
JO - B.E. Journal of Economic Analysis and Policy
JF - B.E. Journal of Economic Analysis and Policy
IS - 1
M1 - 20180048
ER -
