“The nature of informal finance in rural areasÀ”

(A thesis submitted to the Kannada University Hampi for the award of the
degree of Doctor of Philosophy in Commerce)

Researcher
Meenappa Allichandi
Reg No: 170111020282/22-12-2017

Under the guidance of

Dr. Patel Nagarajgoud
Professor
Veerendra Patil College
Sadashivanagar, Bangalore

Department of Social Science

Department of development studies
Kannda University, Hampi
Vidyaranya, Hosapete Taluk
2024

Date:

FromÀ,

1
Meenappa Allichandi
Ph.D Research Student
Department of development studies
Kannda University, Hampi
Vidyaranya-583276

By,
Head of the Department
Department of development studies
Kannda University, Hampi
Vidyaranya-583276

To,
Director
Adhyananga
Kannda University, Hampi
Vidyaranya-583276

Dear Sir

Sub: Final synopsis of Ph.D thesis.

In relation to the above matter, I am Meenappa Allichandi, have registered my Ph.D studies
in the Department of Development studies in the year 2017-18 under the guidance of [Link]
Nagarajgoud. I have done study on “The nature of informal finance in rural
areasÀ” and I have completed the writing of my study and submitted the Final synopsis of
Ph.D thesis to the department.

Thank you,

Under the guidance of

Researcher

Dr. Patel Nagarajgoud

Meenappa Allichandi

Nature and Impact of Rural Informal Finance

Synopsis

“Farmers are the true leaders and saviors of society”

Gandhi
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Introduction

As Gandhiji said "The real India is in the villages and the village
economy is the backbone of the Indian economy." Objectives of economic
planning cannot be achieved without development of rural economy. Therefore,
banks and other financial institutions are considered to play an important role in
the development of rural economy in India. The main objective of setting up
regional rural banks in India is to provide credit to rural people especially small
farmers, artisans, agricultural laborers and small entrepreneurs who are not
financially strong. More than 70 percent of Indians depend on agriculture, 60
percent of industries are agro-based. 50 percent of the national income is
contributed by the rural sector and the agriculture sector is the largest foreign
exchange earner for India. Such an essential and important sector is neglected
by financial institutions and especially banks. Rural development occupies an
important place in the overall economic development of the country. Gandhi
emphasized the rural nature of the economy and the need for regeneration of
rural life.

This observation made many years ago by the Father of the Nation still
rings true. India is an agro-based economy and the rural sector forms the
backbone of overall economic development. The majority of the country's total
population consists of rural population, which accounts for 65 percent of the
total population. Rural economies are playing an indispensable role in the
overall growth and development of the country.
As per the latest census, Rural zone means any place or town with a
population of less than 5000 Population density per square kilometer more than
25% male working population in agricultural activities. The development of
regional rural banks has had a far-reaching impact on the extension of banking
facilities to rural areas. The Regional Rural Banks Ordinance 1975 was replaced
by an Act of Parliament. Each regional rural bank is operated by a public sector
bank.
It is providing assistance in various ways like recruitment of staff and
subscription for training. There are many dilapidated villages in India with less
than 200 people. There their basic needs are largely neglected.
It's an irony that Low savings of small farmers also means they do not take
loans even though they need more external funds for their agricultural and
household expenses. Credit distribution across farm size categories and land

3
holding area statistics in the late 1980s, It was argued that the institutional bias
in favor of small and very small farmers is the share of small farmers using
statistical methods. Although banks and microfinance institutions support rural
people through self-help groups, the total amount disbursed is less than 5% of
the annual principal [Link] most rural people get loans from informal
sources including private moneylenders. This usually comes at a high rate of
interest. Inclusion of women among rural people is low and insignificant.
Although many efforts have been made to link women to banks through self-
help groups under the programs of Ministry of National Agriculture and Rural
Development progress has not yet materialized. The exclusion problem is very
difficult to solve because the marginal cost of reaching new customers is high
for financial institutions.
Statement of the problem
India is an agricultural nation. Many people have taken up agriculture
as their primary occupation. Agriculture depends on rain. the rains are uncertain
in India. The farmers are suffering from the problem of heavy and scanty
rainfall or excess rain and lack of rain. Most farmers own less than one hectare
of land. Some other farmers are working as tenants in the landlord's land. They
depend on loans for daily needs and agricultural activities. Many banks, which
are formal financial institutions, are reluctant to lend to them. Also they are
failing to get the loan due to not being able to fulfill the necessary documents.
So they resort to informal finance from friendly moneylenders, landlords etc.
they suffer from high interest rate. Since there were several sectors of informal
finance users, only farmers were selected for the research study. Informal users
can be said to be exploited by informal financiers. Finding Informal Finance
Users in Bagalkote District. To know their problems under the title "Nature and
Implications of Informal Finance in Rural Areas".The study is being undertaken
to know their problems under the title "Nature and Implications of Informal
Finance in Rural Areas" and suggesting appropriate measures to overcome the
problems, creating awareness about the schemes of the government and help in
availing them.

Literature Review
Research always starts with a question and a problem. Its purpose is to
find an answer to a question through the application of the scientific method.
Several studies have been conducted over several periods to chart the problems

4
of informal finance user farmers. Literature texts, research papers, articles,
books related to the study can be perfect and help for the present research study.
Relevant information related to the current research topic “Nature and Impact of
Informal Finance in Rural Areas” is not available in a single book or treatise.
Therefore, it is necessary to solve the problems of the study through fieldwork
by integrating the information collected for the study. This research was
conducted keeping in mind the concept of nature and effects of rural informal
finance in the data of all the studies. In the present research study I have divided
the informal finance users into three groups or sectors namely small farmers,
medium farmers and large farmers on the basis of agricultural sector and
farmers based on their land and occupation. I have tried to find out the social,
economic and farming problems of the farmers in these three zones and to know
whether the government has been successful in fulfilling the agricultural
schemes for these farmers and to what extent the farmers have experienced
those schemes. An attempt has been made to study and understand the literature
of the problem related to the present study in a chronological manner.

1. Baligara G.B(2015) work "Indian Financial System" describes non-

banking financial companies. Such companies exist in order to meet the
financial requirements for their business activities through a well-
organized banking system. These are also playing a very important role in
the economic development of the country. Institutions collect savings
from people and lend it to those in need. Such institutions provide
medium term and long term loans in the financial market. As per the
amended RBI Act of 1977, a lending financial company is a financial
company which has its own schemes for collecting deposits and lends
money to people on its own terms. Authors explained that these come
under the purview of organizations doing such business which are
permitted by the government.

2. In the book "Financial Markets and Services" by Gordon E and

Natarajan K (2009) current commercial paper, bonds and debentures are
a type of bond. or other loan instrument unsecured by collateral.
Debentures with maturities exceeding 18 months and fixed deposits of
large non-banking companies registered with the Reserve Bank of India
have to be compulsorily rated. Indian credit agencies have strategic
alliances with reputed international agencies. The authors opined that

5
 rating agencies in India should evolve their own approaches in the
context of the macroeconomic environment.

3. "Financial Institutions and Markets" by Shashi K Gupta, Nisha

Agarwal and Nithigupta (2018)” states that a company registered under
the Non-Banking Financial Companies Act, 1956 engaged in the business
of loans and advances. Acquisition of hares/stocks/debentures/securities
issued by Government or local authority or other marketable securities of
such nature, leasing, hire-purchase, insurance business, voucher business.
But agricultural activity, industrial activity, purchase or sale of any goods
or provision of any service and does not include any establishment
involving sale/purchase/construction of immovable property. A non-
banking institution is a company having the principal business of
accepting deposits under any scheme or arrangement either in lump sum
or in installments by way of contributions or otherwise.

4. In the paper “Rural Smartness: Its Determinants and Impacts on

Rural Economy” by Iqbal Ulizer Mukti, Jörg Henseler, Adina Aldea,
Rajeshree Govindaraju and Maria E. Jacob (2022) the current trend of
urbanization is causing serious stress and overburdening of existing urban
infrastructure. This has led to various urbanization problems like poverty,
traffic congestion, energy crisis and pollution. It is difficult to improve
the quality of life in the process of accelerated urbanization of urban
areas. One of the main sources of urbanization is rural migration, mainly
triggered by the widening economic gap between rural and urban areas.
Ultimately improving the competitiveness of the rural business ecosystem
is expected to improve the economic welfare of citizens in rural areas.

5. Utsava Anand (2016) in his article “Financial Inclusion: An Overview

of Micro Finance in India” states that rural development is a challenge
to fight poverty, illiteracy, stagnation, unemployment and various socio-
economic backwardness. Rural development has evolved primarily to
address the needs of the rural poor in terms of sustainable economic
activities. The formal or institutional banking sector is not fulfilling its
social responsibility of meeting the financial needs of the poor due to

6
 various reasons such as lack of adequate branch network, inefficiency in
rural areas. The poor in rural areas due to lack of education and
awareness they fail to give adequate collateral for loans. Authors define
microfinance as an institution that provides loans without the need for
collateral to help poverty-stricken people through the process of forming
groups within the community.

6. Sharma's and Chamala's (2003) article "Moneylenders' Positive

Image: Paradigms and Rural Development" describes Image of
Lenders and agricultural economy and its future role in rural development
in India and evaluates changes in development of thinking and practice
about their future role. The emphasis on a positive image of the
moneylender that is visible at the international level is not so visible in
Indian rural finance practice. This article highlights the positive image of
the moneylender that has persisted through centuries of Muslim and
British rule in India and suggests that a shift from a negative to a positive
paradigm in development thinking requires reviving the latent image
lying under the dominant negativity.

7. Malik R.P.S.(2002) conducted a study titled “Flow of Credit to Small

and Marginal Farmers in Haryana” in two villages of Ambala districts
of Haryana. This study examines the credit experience of traditional rural
financial institutions in relation to small and micro farmers. Particular
attention is paid to the role of new generation credit institutions in
meeting the credit needs of vulnerable groups. He explained that it will
not only focus on the credit flow problems of farming households but also
on other categories of rural households with less than 2 hectares of land.

8. A research paper by Bhattacharya S (2005) “Interest Rates Collateral

and Inter-Legalage: A Micro Study of Rural Credit in West Bengal”
based on a primary field survey in rural West Bengal, this study analyzes
the different formation terms and conditions of rural credit with the
advent of capitalist agriculture in the intervention state. The sample
households were classified according to Patnaik's economic categories
and standard acreage criteria. The possibility of correlation between debt
and all other structures is remote. The average rate of interest is inversely

7
 related to ascending class status. Explained that there is a systematic
relationship between interest rate, collateral value on one hand, collateral
market and interest rates on the other hand.

9. Madhushree Ghosh, Lepakshi H, Sanjana S and Anirudh Anil

Bhaskar (2021) conducted an in-depth study titled “A Study on
Financial and Non-Financial Sectors of Rural India” to understand the
rural economic situation to develop a workable solution with social value
proposition. The authors not only found that rural economies play an
indispensable role in the overall growth and development of the country
but also suggested that the growth of the rural economy and the lack of
infrastructure for the rural people would only be helped by providing
finance to the rural areas.

10. In Vasant Desai's (2010) work “Banks and Institutional

Management”, non-banking financial companies play a critical role in
expanding access to financial services, increasing competition and
diversifying the financial sector. They are being identified as
complementary to the banking system. Factors such as flexibility,
timeliness in meeting credit needs and low operational costs have given
the non-banking financial companies a better foothold over the banking
sector. The author describes the role of non-financial institutions as the
Reserve Bank of India Act was amended and the regulation extended to
non-banks after several unhealthy practices came to light.

Research gap

Many research studies on microfinance, SHGs, rural development,

credit policy of banks etc. have mostly focused on the topic of formal finance.
Although there are many types of users of informal finance such as agricultural
workers, construction workers, street vendors, domestic workers, etc in many
studies have focused on a single sector of users. Thus, there are many studies
focusing on the same sector of users, but no comprehensive study has been
undertaken. So motivated to study on this topic. Although many books, articles
and journals have been published on this subject, their scope is very limited. As
there is no in-depth study on the nature and effects of informal rural finance and
since it is not studied, this topic is chosen as the subject of my research study
8
and studied. In this view a comprehensive study was undertaken on the topic
“Nature and Impact of Rural Finance”. The main objective of the selection of
this topic is that no studies have been conducted so far on informal finance user
farmers in Bagalkote district.
Objectives of the study
[Link] know the nature and growth of finance in rural areas
[Link] know the problems faced by rural people in relation to agriculture and
informal finance.
[Link] the impact of informal finance
[Link] know the financial facilities provided by the government to the rural
people

Methodology of study
Data were collected in two ways, primary and secondary.

Primary Data

The information required for the research study was collected in

primary data with the help of observation, structured questionnaire and direct
interview method for better understanding of the topic selected for the study.
Informal users of rural areas were divided into three categories as small farmers,
medium farmers and large farmers and interviewed at their working places,
living places and their economic, social and type of credit, use of informal
finance, problems faced in informal financial business were collected.

Secondary Data

In the study, I have used the appropriate information related to the topic
of the research study such as informal financial information such as statistics,
budget reports, books, monthly newspapers, libraries, published and
unpublished theses, books, articles and internet. Research studies examining the
realities of informal financial transactions are found in regional, national and
international journals. This study aims to construct such a research based on
primary data, secondary data and fieldwork based on published books,
exploratory research concept, and issues faced by rural informal finance
providers and respondents. It has been studied through questionnaire,
observation method and interview.
Tools and Techniques
9
 Chai-square test was adopted in the present study. Informal finance
users of Bagalkote district are being screened by Chai-square on issues of small
farmers, medium farmers and large farmers, economic and social etc. This
examination describes the scale of problems and effects of fieldwork clients or
farmers in using informal finance. This method is applied according to the
necessity and suitability of the data to be more accurate and systematized. A
statistical tool is described here for this purpose.

Test: The chai-square test is a statistical test used to compare observed and
expected results. Karl Pearson introduced this test in 1900. It is also known as
Pearson-chai-squer test. This test is used to test the observed results against
expected values. Consequently the chai-square test is an appropriate choice to
aid in the understanding and interpretation of the relationship between three
categorical variables. These tests are often used in hypothesis testing. A
hypothesis is a hypothesis that any particular condition may be true that can
then be tested, these tests use degrees of freedom to determine whether a
particular null hypothesis can be rejected based on the total number of
observations made in experiments.

Hypothesis

1. H0 : There is no significant difference between male and female users of

informal finance among the respondents.
H1 : There is no significant difference between male and female users of
informal finance among the respondents.

2. H0 : There is a significant difference in terms of educational level among

the users of informal finance among the respondents.
H1 : There is a no significant difference in terms of educational
level among the users of informal finance among the respondents.
.
3. H0 : There is no significant difference in the extent of land holding among
users of informal finance among the respondents
H1 : There is significant difference in the extent of land holding among
users of informal finance among the respondents
.
4. H0 : There is no significant difference in sources of credit among users of
informal finance among the respondents.

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 H1 : There is significant difference in sources of credit among users of
informal finance among the respondents.

5. H0 : There is no significant difference in the extent of utilization of

government scheme among users of informal finance among the
respondents.
H1 : There is significant difference in the extent of utilization of
government scheme among users of informal finance among the
respondents.

Methodology & Sampling frame

Farmers from Bagalkote, Guledagudda, Hunugunda, Ilakallu, Rabakavi,
Mudhola, Badami, Belagi and Jamkhandi taluks of Bagalkote district were
studied. A fieldwork study has been done on small farmers, medium farmers
and large farmers among them landlords and tenants. Respondents from nine
taluks were selected based on statistical analysis. Sample selection and sample
size add value and power to the study. A total random sample of 409 people
belonging to different age, educational and income groups among informal
finance users of Bagalkote district was selected for the research. 156 and 65 of
the current small farmers landowners and tenants, 89 and 35 of medium farmers
landowners and tenants, 56 and 8 of large farmers landowners and tenants
identified in the present study area were randomly selected consumers or
farmers. A total of 409 users of informal finance were included in the study.
Information was collected through appropriate questionnaires to know the
nature of informal finance and the problems faced by them by visiting them and
approaching the subject of the study.

Scope of the study

The farmers of informal finance users of nine selected taluks were visited and
related to the study subject, observations and direct interviews were conducted
and appropriate information was collected from them through questionnaires.
This analysis is based on primary data and the information obtained through
direct interview of the respondents was analysed. Bagalkote, Guledagudda,
Hunagunda, Rabkavi, Ilakalla, Mudhola, Badami, Bilagi and Jamkhandi of
Bagalkote district identify the users of informal finance firstly [Link] farmers,
2. Middle peasants and 3. I have divided the study into three sections namely
large farmers.

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Importance of the study
More people in India are users of informal finance. The rules of informal
financial providers are much simpler than those of formal institutions like
Central Bank, Commercial Bank etc. and they are easily accessible without any
delay when the need arises. In rural areas there are formal and informal
financial providers. I chose the informal finance system of Bagalkote district.
Many providers of this finance are setting their own interest rates on the loan
without any policy. Although many types of loans are given to farmers in banks,
all of them are more [Link] is no doubt that the life of the country's
breadwinners is miserable because most of the farmers in the rural areas of
Bagalkote district have small pieces of land and are in the name of the family
members and the records are inadequate. Informal financial services,
functioning are the some facing problems faced by farmers. It has gained
importance in examining rural informal finance problems and suggesting ways
to solve them. The following are the significances of the present study.
1. In this study it is helpful to know the level of use of credit providers' services
in current informal financial business process.
2. The present study provides useful information to researchers studying the
failure of informal finance user farmers in rural areas to access formal finance.
3. Research helps to know what formula or method informal finance providers
are using and how it affects the farmers.
4. This research study is useful to know about many agricultural schemes of the
government to overcome informal financial exploitation.

Chapterisation
In the present research study, mainly six chapters are structured as follows.
Chapter 1: Introduction: In the present first chapter information about
introduction, survey of studies, problematization of studies, research gap,
objectives of study, methodology of study, selection of study area, limitations of
study, significance of study, design of study is presented.
Chapter 2: Introduction to the Study Area : Covers the historical background of
Bagalkote, area and population of Bagalkote district, bank wise deposits and
disbursed loans in 2020-21.
Chapter 3: Nature and Development of Rural Informal Finance: In the third
chapter, introduction, meaning and characteristics of rural finance, rural
financial services, importance of credit in agriculture, providers of rural finance,

12
nature of informal finance sector, aspects of rural finance system in economic
development are studied.
Chapter – 4: Role of Government in Rural Informal Finance: Contains
information on rural finance issues, challenges, implications of rural informal
finance, need & importance of financial inclusion in India, role of government
in rural finance development and government schemes.
Chapter 5: Perception of users of informal finance in Bagalkote district: The
research was conducted and fieldwork respondents were surveyed to find out
which financial services are being used by the respondents for agricultural
activities through questionnaires from small farmers, medium farmers and large
farmers land owners and tenants among informal finance users in rural areas of
Bagalkote district. An analysis of the data obtained from the direct interview on
the reasons for failure to get loans in formal financial banks, loan volume, loan
repayment method problems and utilization of agricultural schemes by the
government is presented.

Chapter 6: Findings of the Study, Suggestions and Conclusion Chapter six

presents the introduction, findings of the study, suggestions, summary of the
study and conclusion. At the end, bibliography, questionnaire and photographs
are given.

Findings
1. Our India is a country of villages. People here are heavily dependent on
agriculture. It was found through the field work interview that the number of
consumers in Bagalkote district are less in other jobs and most of the consumers
are engaged in agricultural activities and are agricultural labourers.
2. It can be seen that the reason for the increase in the number of farmers who
have one or two acres is that they are growing other people's land on contract
basis in addition to their own land.
3. Most of them are in the age group above 40 years in the field work. A
research study has found that factors such as being engaged in education, going
to town for work without profit in agriculture etc. are responsible for the
significant decrease in the percentage of 40 year olds.
4. Bagalkot district has 46.54 percent irrigated land and 53.54 percent dry land.
There is hardly any difference in the percentage of dry land and irrigated land
holders. It has been found in the research field that many irrigation schemes of
the government are being utilized.

13
5. In the research interview, when asked the reason for the high percentage of
tractor usage, the farmers said that not only the wages of agricultural workers
are very low nowadays but also they do not come to work properly from time to
time.
6. Bagalkot selectors found that there was hardly any difference in the
percentage of farmers growing one crop and one crop in a year. While the large
farmers' land owners and tenants are growing food crops and commercial crops,
small farmers are growing only food crops.
7. Drought is common in Bagalkot due to lack of adequate rainfall. Caused
considerable economic loss to the agricultural industry of Bagalkot. Field work
revealed that the district has the fifth highest farmer suicide rate in Karnataka.
8. One has to go to distant city hospitals without modern medical equipment.
Transport connectivity makes it difficult to get around the city without a large
number of buses. But even though many improvements can be seen in some
villages, it is still necessary to provide more basic facilities in the villages.
9. People in the rural areas of Bagalkot are mostly illiterate and are victims of
informal finance without opening bank accounts. During the research, it has
come to know that people from all walks of life are ready to open accounts in
the bank after the introduction of zero-fee accounts.
10. The respondents of Bagalkot mostly chose self-help groups. Getting loans in
SHGs is simple when you know the reason for choosing. But since one hundred
and eight documents have to be completed to give loans in banks, more farmers
are choosing self help groups for financing, the respondents expressed their
opinion during the interview of the research study.
11. As the consumers of fieldwork are farmers, it is seen that taking agricultural
loans is more.. The next preferred personal loan is lastly the education loan.
Since the children of farmers in rural areas are mostly studying in Kannada
schools, free board, bicycle, meals and accommodation are provided, so they
have very little need for education loans during their studies.
12. Loans are sanctioned faster as small farmers have smaller land size and loan
amount. Apart from that, it is known during the fieldwork that since they mostly
make loans to moneylenders, they get loan approval faster.
13. The respondents of the field work expressed their opinion in the research
oral interview that they like to use Pahani as security because they are farmers
and they get exemption when they use Pahani as security and also they get
many benefits such as loan waiver taking into account that they are farmers.

14
14. The big farmers not only give their land for holding or lease, but they
themselves pay for all the needs of the people who grow their land or grow
crops, give them a small loan according to their need or situation, grow the crop
and get the loan waiver and discount from the bank or association.
Therefore, if the tenants are struggling, the landowners are reaping the
maximum benefit and the tenants are still living in debt.
15. Although there are many agricultural schemes of the government, Pradhan
Mantri Kisan Samman Yojana and Krishi Salamanna Yojana have been
significantly increased in the number of users but the research study has found
that only these two have been somewhat successful among the schemes put up
by the government.
16. There is no basic infrastructure such as warehouses or warehouses, even
there the rent has to be paid for it. Farmers have to rely on brokers or
intermediaries to sell their crops directly without direct contact. Most of the
farmers' profits are consumed by these middlemen. Farmers are not getting
proper benefits for their hard-earned crops. It is a common sight during field
work
17. Although agriculture is the main occupation in India, farmers still use the
old system. It is a fact that farmers are still lagging behind in the use of
agricultural machinery despite modern methods of agriculture. The reason may
be its lack of information and insufficient funds to purchase the machines. It has
been found from the research study that even if the farmer gives the crop to
everyone, it is a sad fact that he is still poor.
18. Survey data reveals that interest rates on informal sector loans and
transaction costs of 13 per cent on previous loans are three times higher than in
the formal sector.
19. Debt, alcohol addiction, environment, low produce price, stress and family
responsibilities, apathy, poor irrigation, increased cost of agriculture, private
moneylenders, use of chemical fertilizers and crop failure, cost of seeds and
chemicals like fertilizers and pesticides. Research studies have shown that are
reasons for farmer suicides

20. In relation to different asset groups, research studies have shown that
borrowers in the lower asset bracket mostly borrow from the informal sector
and the higher asset groups borrow or borrow from the formal financial sector,
while smallholder farmers depend only on informal sources of credit.

15
21. Out of the total respondents the educational level of most of the sampled
smallholder farmers is about 50 percent primary and secondary. The fact that
their children are used for agricultural work and lack of higher education
institutions in rural areas is a factor observed in the study area.
22. The percentage of small farmers landlords and tenants who prefer annual
installment repayment is because they not only depend on agriculture for their
livelihood but also have to pay for food, housing, loan repayments with the
proceeds from the sale of crops. As they are able to provide money for loan
repayment after the harvest of the year, the fact that annual loan repayment is
mostly chosen is a factor that has come to light in the field work.
23. Low rainfall, crop failure, low cost of production, lack of irrigation facilities
and high interest rates are the major reasons for non-repayment of loans in the
study area.
24. Among the various difficulties, most of the farmers revealed in the
fieldwork interviews that fulfillment of documents is the main difficulty in
sanctioning loans in the formal sector.
25. In India, where nearly one-fourth of the population is illiterate and below
the poverty line, ensuring financial inclusion is a challenge. Rural poverty leads
to low agricultural income, lack of sustainable livelihoods, lack of skills, under-
employment and unemployment. Thus, the study found that ensuring deposit
operations in these accounts is a challenge.
26. The age of the borrower makes a difference to the cost of his loan. Younger
borrowers, especially those in the middle age group of 35 to 50 years, are more
likely to repay the loan over their lifetime. Hence the effective cost of
borrowing is less in their case. The fact that borrowers above 50 years of age in
the informal sector are less likely to repay their loans is notable in the study for
low debt levels.

Suggestions

[Link] of the farmers in fieldwork have cut down to primary level education.
Hence it is necessary to take proper efforts to improve the educational level of
farmers to improve their economic status.
[Link] of the model farm households in Bagalkote district have availed of
informal loans such as moneylenders. Therefore, the government should keep a

16
strong check on the activities of non-institutional credit agencies and extend
institutional credit facilities to the farming community at low interest rates with
easy repayment facilities.
[Link] infrastructure such as roads, electricity and transport connectivity
will help create better access to financial services and improve economic
growth in rural areas.
[Link] people in rural areas are not aware of the benefits of financial services
or how to use them effectively. Promoting financial literacy through education
and awareness campaigns helps people understand the importance of saving,
and investing.
5. To save farmers from the clutches of moneylenders and for economic
development, Banking may be suggested to provide sufficient loans to the
agricultural sector.
[Link] should provide adequate subsidy on modern irrigation facilities
and modern farming methods and organize workshops to inform the farmers
about their importance.
[Link] is necessary to incorporate the information in the textbook from primary
level A to postgraduate level. Because today Indians are very indifferent
towards agriculture. Promotion of agricultural activities should be treat as the
first priority.
8. There is a need to expand formal sources of credit in rural India to reduce
rural people's dependence on informal sources of credit. Credit from informal
sources is available at high interest rates and this leads to exploitation of rural
people. Formal sources of credit come at cheaper interest rates. Central and state
governments have to look in this regard.
[Link] the reach of the formal financial sector. Farmers should be helped by
opening more bank branches and ATMs in rural areas and providing financial
services through non-banking intermediaries such as microfinance institutions
and self-help groups.
10. Farmers in rural areas are failing in getting loan by filling many documents.
They are facing many difficulties in getting loans in formal institutions. Hence
it is necessary to improve the system of sanctioning loans by adopting modern
banking system
11. In addition to increasing the number of Regional Rural Banks and Land
Development Banks, the government should provide short term and long term
loans during emergencies like flood or drought.

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12. Make financial services more affordable. Financial education should be
provided to help people understand how to use these products and services
effectively by reducing the cost of financial products and services.
13. The government is planning to switch to a direct cash transfer system (cash
equivalent to subsidies transferred directly to banks). This will help reduce
subsidy leakages due to corruption. This should be discussed and subsidies
should be given to the needy.
14. In field work the number of tenants claiming land of landlords or lessors has
increased. Bank A will fail to get government benefits like subsidy, loan waiver
etc. Since the name of the land is land owner, they are unable to avail
government schemes. So it is necessary to plan projects in this regard.
15. Government should not only build godowns but fix minimum rent as there is
no warehouse or godowns to store the crop in rural areas.
16. Why has moneylenders flourished in the financial market despite the
constant efforts of formal sector institutions and do interest rates matter? In
modern times, if interest rates matter, why do people prefer to go to
moneylenders despite the network of banks, cooperatives? More research is
needed on that.
17. Crop production per hectare has seen a boost as a result of adoption of new
scientific methods. Although this is not happy for everyone, it is clear from the
suicide of farmers. There is this vicious circle where bumper crop prices fall
sharply, resulting in poor sales and dilemma. Hence it is very important for the
government to decide the support price for the crop.
18. Field farmers are illiterate so it is difficult to understand conditions or terms
while taking loans, product offers are in Hindi or English language. Therefore,
it is the first duty to implement the local language as a condition, offer, rules
19. To tackle and prevent the problem of farmer suicides in India, the
government has implemented schemes such as 70% reduction in Monsanto's
royalty, relief to farmers in input subsidy, Pradhan Mantri Fasal Bima Yojana
(Crop Insurance for Farmers) and Pradhan Mantri Krishi Sinchai etc. limited to
specific area. A lot of effort is needed to deliver these to the farmers in every
nook and cranny.

20. Government should make many arrangements to support the crop as the
farmers do not have the right price for the crop, as the menace of middleman is
very high and they are consuming a large part of the profit of the farmers.

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Repayment of loans should be fixed on the amount of farmers' crops and there
should be flexibility in loan repayment
21. Small farmers need money to buy modern farm equipment. Therefore, the
government should emphasize on funding modern scientific methods and
agricultural equipment.

22. The government should take steps to provide formal finance to the
landowners of the field work, similarly to the tenants who are holding the land
of rich farmers without their own land.

23. Self Help Group, having voucher business opined that there is no need to
open accounts in banks of A. Many schemes should be planned to promote the
use of bank accounts in villages and the government should work in this
direction in expanding the branches of banks in villages.

Conclusion

The research paper is framed with the objective of examining the

financial problems of users of informal finance in Bagalkote, Guledagudda,
Hunugunda, Badami, Beladi, Ilakalla, Rabakavi, Madhola and Jamkhandi taluks
of Bagalkote district under the title “Nature and Effects of Informal Finance in
Rural Areas” impact and benefits of government schemes. has broad outlines.
Based on several literature reviews, an attempt has been made to find answers to
several questions for consumers to know about the nature and effects of
informal finance in rural areas. In this study informal finance user consumers in
Bagalkote, Guledagudda, Hunugunda, Badami, Beladi, Ilakalla, Rabakavi,
Madhola and Jamkhandi taluks of Bagalkote district were studied. By visiting
the customers of the selected taluk and dealing with the subject of the study,
observation and direct interview were done and appropriate information was
collected from them through questionnaire. This analysis is based on primary
data and the information obtained through direct interview of respondents is
analyzed. In this research dissertation, the study results are the last chapter and a
summary of the topics covered in the previous chapters is presented. It is a
comprehensive study of credit flows among rural households, in which
borrowers and creditor relationships are explored. Bagalkote district has been
selected as a sample district for conducting the preliminary survey.

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Analytical focus is on uncovering the complexities of formal and informal
credit markets and gender issues. The inquiry deals mainly with small-scale
loans, mostly obtained from the farming community engaged in crop
cultivation.
It is a sad fact that although the overall percentage of men in the field
work has increased, women have increased among the small farmer landowners
and no one below the age of 18 has participated in agricultural activities. Those
above 40 years are uneducated and married and live in their own stone built
house. The selector chose a nuclear family with his spouse and children.
Number of dependents are two children. The number of farmers owning their
own lands is more than the number of tenants. Most of the small farmers are
land owners who cultivate their land themselves. Large farmers engage
agricultural laborers in agricultural activities. More farmers are using the old
methods of carts and bullocks to plow the land. Overall, 38.39 percent of
farmers depend on rain. It can be seen that the number of small farmers who
own two acres of land is more and the percentage of those who own more than
three acres of land is higher among large farmers. It is ironic that the number of
people who are causing crop failure due to lack of sufficient rains is high and
the number of basic facilities such as libraries and banks is low. Farmers mostly
live in rural areas and have more accounts in cooperative banks and self-help
groups as commercial banks or government banks are located in urban areas.
Due to lack of documentation in banks, agricultural loans are taken from
informal institutions such as moneylenders, pawn brokers and cooperative
societies. They are mostly using their livelihood vehicle to take secured loan.
Selected farmers are paying the loan repayment in annual installments as
agriculture is their main occupation. The selected respondents of Bagalkote
district are accusing the government of elimination of middleman, support,
relaxation in repayment of loans, training to provide information to adopt
modern agricultural practices and due to lack of these, the government is
responsible for the suicide of a large number of farmers. The suggestions given
above reveal the "total quality policy" of informal finance in rural areas. More
than this, what is required is dedication, determination to seek progress,
development and the mandate of the government to expand more government
banks in rural areas. Reforms in the financial sector have posed challenges as
well as new opportunities for banks. These challenges require some reform
measures for banks. Banks are the best means of transactions and loans. The
usefulness of these organizations has helped many in a massive way. Co-

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operative societies, banks, self-help groups are people's banks and are quite
financially strong and also highly profitable. But these banks should be further
developed. Although these banks are already quite financially strong, they
should be made very powerful in the financial system. It is an attempt to bring
this matter to the attention of the government. Let us rededicate ourselves
through this research work to take the financial system to greater heights of our
nation's glorious power, purpose and viability.

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