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Statistics on Informal/Traditional Credit Markets

Volume of Institutional and Non-institutional Credit in Urban and Rural Areas of India (1981-82) 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) Note: A crore is numerically equal to 10 million Source: Germidis et al. (1991)

%img src="" /%(Per cent per annum) Source: OECD Development Centre case study on India

%img src="" /%(per cent) Source: Ghate, 1990

%img src=",%20agricultural%20moneylenders,%20traders,%20friends%20and%20relatives,%20and%20others.%20Clearly,%20whether%20the%20first%20three%20belong%20to%20different%20segments%20is%20an%20area-specific%20question%20which%20depends%20on%20the%20extent%20to%20which%20they%20specialize%20in%20catering%20to%20different%20borrower%20groups.%20In%20a%20rural%20credit%20market%20study%20of%20Kerala%20and%20Tamil%20Nadu%20states%20in%20south%20India,%20there%20were%20no%20landlord%20lenders,%20a%20reflection%20of%20the%20relative%20absence%20of%20tenancy%20in%20the%20area,%20and%20agricultural%20lenders%20lent%20mostly%20to%20agricultural%20laborers%20and%20to%20small%20farmers%20on%20thebasis%20of%20hypothecation%20of%20arecanuts%20and%20other%20crops.%20They%20were%20localized%20and%20less%20important%20as%20a%20source%20of%20credit%20than%20the%20rapidly%20growing%20number%20and%20variety%20of%20professional%20money%20lenders%20who%20lent%20more%20impersonally%20to%20a%20wider%20clientele%20mostly%20against%20the%20security%20of%20gold.%20Included%20in%20this%20category%20were%20finance"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.

Category: Payday loans

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