For any rural development strategy, providing credit and creating savings are needed. Credit plays an important role not only in modernization agriculture, but also in the fight against rural poverty. But we must be careful not to equating credit flows with capital creation in rural areas.
Simple increase in flow money to rural areas is not credit. Similarly, if rural savings people are used only for consumption, the accumulation of capital will not take place.
What are the main features of rural credit markets?
one should try to understand the fundamental characteristics of the “market”. Market in abstract meaning is an institutional scheme for the exchange of goods and services, even factors of production, for the mutual benefit of buyers and sellers. In “equilibrium” or “state of equilibrium” the prevailing prices are such that no the buyer or seller is prompted to change the quantity they want to buy or sell.
Whenever conditions arise to create a shortage or surplus, it is assumed that prices adapt to bring the situation back into balance. For these things to take place, a number of conditions are expected to be met. It is assumed that all buyers and sellers have complete information on all aspects of the relevant operations.
Not the buyer or seller should ideally be able to influence or control the market and receive a disproportionate share of the wealth. It also shouldn’t be overflow effects. Often the credit market does not match what was detailed higher.
Rural credit markets have several characteristics.
First, they are characterized by a rural credit and banking due to imperfect and incomplete information. Not all parts are the same level information. Lenders usually do not have all the necessary information. about your customers, their habits and solvency.
Second, credit markets often segmented. Small farmers for small amounts of loans, as a rule, go to the same lenders, larger farmers to a different group of lenders, and so on.
Third, there is credit rationing. Even at current interest rates, anyone who wants to borrow not borrow as long as there is no upward pressure on interest rates.