An empirical investigation of rationing constraints in rural credit markets in India

The literature on rural credit markets has generally assumed that households are rationed in their access to subsidized 'formal' credit. The validity of this assumption depends on the level of effective demand for formal credit, in turn a function of the demand for credit and its availability from 'informal' sources. This paper estimates the demand and the sector-specific costs of credit, and hence the extent of formal sector rationing, through an analysis of household participation in both the formal and the informal credit sectors. The results show that the extent of rationing is considerably less than what is conventionally assumed. (C) 1997 Elsevier Science B.V.