Transactions in rural credit markets in Western Orissa, India

Based on fieldwork in Western Orissa, India, this article examines three aspects of rural credit markets: (a) the pattern of participation of different classes of farm households; (b) types of collateral offered; and (c) rates of interest charged on different types of collateral. Contrary to popular belief, we find that production loans from informal sources are important for poorer farm households. The relatively rich households have access not only to a greater amount of credit (both formal and informal) but also to cheaper credit, thereby perpetuating rural inequality. Lastly, the burden of informal debt on poorer households is much higher than on rich households.