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5 Key Factors Affecting Rural Indians’ Access to the Formal Credit System

India is a nation where agriculture plays a crucial role in the economical growth of the country. People in rural India depend on agriculture for food, income, and raw materials. But any climatic change or unavailability of funds that affect agricultural production create a huge impact on the lives of farmers. Each year an alarming number of farmers commit suicides across the country. The foremost reason for this is the slow growth in agricultural production due to the unavailability of agricultural credit during a period of acute crisis and unfortunately, the government is not far-reaching and doesn’t prove to be beneficial for small and marginal farmers. The Indian government has attempted various measures but still, the formal source of credit falls short. Here are the key factors affecting rural Indians access to the formal credit system:

Unavailability of Proper Documentation:

To avail the formal credit from commercial banks and cooperative societies, a proper set of documentation is obligatory. Many people in the rural area, don’t have their Aadhaar card, pan card, or voter Id. Either they don’t have applied for it or might have lost it. The lack of documentation put a limitation on their access to the formal credit system and increases their dependence on informal sources and as a result, they have to pay extra interest rates and many people become bonded labor.

Irregular Source of Income:

Rural India is extensively reliant on Agriculture for its requirements and survival.  Small farmers work day in and out to generate daily income which is only hand to mouth kind of income. They are always in need of credit but their needs are often unmet by the government. They are stuck in their debt and unable to rise above it. But to get credit facility from the cooperative banks and commercial bodies, a regular source of income is necessary to show the repayment capability which many people fail to do.

No Credit history or Poor Credit Score:

According to the sources, the returns earned by farmers through formal credit is 17% high than farmers dependent on informal sources. Therefore, the government is taking the initiative to pay agricultural credits but when it checks the creditworthiness of a person, no data is found. People in rural India face difficulties in accessing credit and get exploited by informal sectors as formal credit sectors are unwilling to take any risks. Credit history is checked by the formal sectors to get an idea of the repayment capability of the borrowed sum on time. Despite numerous existing initiatives, only a few percentages of marginal farmers are covered by formal credits.

Absence of Collateral:

Farmers generally don’t own a big house or land. They work in somebody’s land to earn their living.  They don’t have any collateral to show and avail the credit. Due to this reason, they couldn’t able to buy seeds, machinery, and other advanced technology that could increase the return from their farming activity.

Inflexible Tenure & Interest Rates:

The credit availed from the formal credit system has a fixed tenure and interest rate whereas the informal credit system gives flexibility in repayment tenure and interest rates. Small Farmers and other marginal laborers, generally prefer to take credit from other informal sources, so they can pay the loan amount at their own pace. Moreover, they don’t have to show any documents or collateral to get the loan.

 Some Reliable Alternatives to Formal credit system:

Micro Lending

The economy of our country mostly depends upon loans. But many rural people are not eligible for the loan systems in India. Hence, iServeU is with them to support them financially through the advance “Micro Lending” platform. BC Agents can boost up their business with the help of iServeU lending or Loan Disbursement solution. Grow your business with our easy working capital loans.

For more info, visit us at or call us on +918338088000.