Informal finance is still thriving in rural India, despite the penetration of the formal financial sector, per RBI’s Report on Currency and Finance (RCF).

Among the total outstanding loans of rural households, 31 per cent is sourced from informal lenders.

“Penetration of informal loans is particularly high among the lowest economic strata of households.

“Consumption smoothing, social ceremonies and medical emergencies together account for nearly 30 per cent of total loans availed by rural households in 2018-19 (NSO, 2021),”. said RBI officials in the report.

The officials observed that this indicates that a significant portion of loans by rural households are driven by immediate and essential needs rather than long-term investment, reflecting vulnerability in their financial position and access to services.

They noted that a significant number of lower-income households and businesses in the informal sector remain excluded from credit registries as they often lack the necessary information that financial institutions need to evaluate creditworthiness.

This exclusion decreases their chances of obtaining finance and increases the cost of loans when they do receive them.

Low penetration of Kisan Credit Cards

At end-March 2023, the number of operative Kisan Credit Cards (KCCs) stood at 7.4 crore, with KCC penetration being less than 20 per cent among marginal farmers having less than one hectare of land.

The reasons for the low penetration of KCCs are the unavailability of online land and revenue records as well as a lack of awareness about the scheme, among others.

The officials said digitalisation of agricultural finance through digital KCC products under the PTPFC (Public Tech Platform for Frictionless Credit) will deepen inclusion through hassle-free disbursement of loans.

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