Spatial Analysis of Agricultural Finance and Microfinance: The Case of India

FARM Working Paper No. 11/2007

16 Pages Posted: 18 Oct 2008

See all articles by Cyril Fouillet

Cyril Fouillet

Université of Oxford - School of Interdisciplinary Area Studies; Université Libre de Bruxelles (ULB) - Solvay Brussels School of Economics and Management; French Institute of Pondicherry (IFP)

Date Written: 2007

Abstract

With 70% of poor Indians working in agriculture, this sector is one of the pillars of the national poverty reduction strategy. Given it represents 20% of GDP and 60% of employment; it is difficult to imagine how India could strive for equitable growth without revitalizing the agricultural sector.

Microfinance, defined as the provision of financial services (loans, savings, insurance and money transfers) to people excluded from the banking sector, is often invoked as the solution for financing rural India. But financing of small farms and, more broadly of the agricultural sector, is difficult for numerous reasons. Banking institutions must face a variety of obstacles: insufficient infrastructure resulting in high transaction costs; covariance risks related to climate, price fluctuations and markets; lack of experience in evaluating the value of produce they are asked to finance; low education levels of farmers and farm laborers; and difficulties securing guarantees, to name but a few.

Our research addresses the financing of Indian agriculture. It describes the localization and evolution of financing in this sector while attempting to determine the role of microfinance. The objective is to advance knowledge of both agricultural finance and microfinance by integrating the spatial element. Cartographic analysis and symbol maps cross several variables and permit us to better visualize the extremely heterogeneous situation in this country, which concentrates one-sixth of humanity.

Our results show that the supply of rural and agricultural finance is subject to considerable territorial inequalities. Supply tends to concentrate in richer regions with two consequences: i) reinforcement of existing territorial inequalities; ii) and the risk of saturation and client overindebtedness.

Following the reforms of the banking sector in the 1990's, the Indian bank network contracted, causing a part of the population to see their access to banks cut off. While the liberalization of the sector favored urban and semi-urban zones, agricultural and rural finance have suffered. Even more alarming is that zones already underserved prior to the 1990's reforms seem to be particularly affected by this debancarization phenomenon. Furthermore, the spatial comparison of the supply of microfinance and bank services with agricultural activity shows that microfinance covers very few of the least banked zones in the country.

Note: Downloadable document is in French.

Keywords: Development, Microfinance, Spatial Analysis, India, Self-Help Group, Rural Finance, Agriculture

Suggested Citation

Fouillet, Cyril, Spatial Analysis of Agricultural Finance and Microfinance: The Case of India (2007). FARM Working Paper No. 11/2007, Available at SSRN: https://ssrn.com/abstract=1285740 or http://dx.doi.org/10.2139/ssrn.1285740

Cyril Fouillet (Contact Author)

Université of Oxford - School of Interdisciplinary Area Studies ( email )

12 Bevington Road
Oxford, Oxforshire OX2 6LH
United Kingdom
(44) (0) 1865.284.985 (Phone)
(44) (0) 1865.284.992 (Fax)

HOME PAGE: http://www.area-studies.ox.ac.uk/

Université Libre de Bruxelles (ULB) - Solvay Brussels School of Economics and Management ( email )

Avenue F.D. Roosevelt 50
Bruxelles, 1050
Belgium

HOME PAGE: http://www.solvay.edu/EN/Research/Bernheim/RsUnits_General.php?user=6631

French Institute of Pondicherry (IFP) ( email )

11, Saint Louis Street
Pondicherry, Pondicherry 605 001
India

HOME PAGE: http://www.ifpindia.org/-en-.html

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
916
Abstract Views
3,153
Rank
47,477
PlumX Metrics