Farmers’ Loan Repayment Behaviour in ‘Rice Bowl’ of West Bengal, ‘Bardhaman’: Does Financial Literacy and Financial Confidence Matter?

The study aims to examine the loan repayment behaviour of farmers in the state of West Bengal and to analyse the combined influence of financial literacy (Fin Lit) and financial confidence (Fin Con) on such behaviour. The study is based on primary survey data collected from 246 farmers in the agriculturally prosperous district of Bardhaman, West Bengal. To address the possible problem of endogeneity in the analysis, the study employed an instrumental-variable probit model. The findings reveal that nearly 58.94% of the farmers failed to repay their agricultural loans on time. The study also observed a low level of Fin Lit and financial under-confidence among the respondents. Both Fin Lit and Fin Con were found to have a positive influence on the loan repayment behaviour of farmers. However, Fin Con showed a stronger impact on repayment behaviour compared to Fin Lit. Among the control variables, farming experience, agricultural income, off-farm income, source and utilisation of agricultural loans, gender, household size and financial shocks were found to be statistically significant in influencing loan repayment behaviour. Since Fin Lit and Fin Con emerged as important determinants of timely loan repayment, the study suggests that the government and related institutions should take appropriate initiatives to improve these factors among farmers.