CSES in Media

Rural Kerala struggles to service debt burden

This report on CSES study was published in Deccan Chronicle on 14.11.2019

One-third of the poor households are insolvent/over-indebted as their monthly loan repayment exceeds their monthly family income.

Kerala’s rural poor are deep in debt with loan servicing obligations eating into their monthly income. But a significant share of households spends borrowed money for conspicuous consumption rather than productive purposes.

 “One-third of the poor households are insolvent/over-indebted in the sense that their monthly loan repayment exceeds their monthly family income. Another one-fourth of the households have to spend more than half of their income for loan repayments,” said the study conducted by researchers Dr Rakkee Thimothy, Aswathi Rebecca Asok, Swathy Mohanan, Bibin Thambi and M. Ramshad.

They found that 88 per cent of the poor rural households are indebted and only 12 per cent does not have any outstanding loans.

The study defined poor households as those having yellow and pink PDS cards. The sample size of the research was based on 540 households spread across the state selected using systematic sampling procedure.

Apart from the higher levels of the debt burden among the rural poor, the study also found that a good chunk of them depends more on “formal sources such as commercial banks, cooperative credit institutions, NBFCs, private MFIs, Kudumbashree and other self-help groups than informal sources such as money lenders, friends and relatives.”

“While 44 per cent of those who have an outstanding loan depended on formal sources only, 49 per cent tapped both formal and informal sources. Only seven per cent relied solely on informal sources for their financial requirements,” the study said.

Cooperative financial institutions and Kudumbashree are the main sources for the poor to meet their credit requirements.

Maintenance/renovation/construction of houses followed by health care and loan repayment needs are the prominent purposes for which the rural poor utilise the loan amount. “It is a matter of concern that more than one-fourth of the indebted households have borrowed for repaying old debts, thereby increasing the risk of insolvency,” it said.

While the share of households utilising loans for directly productive purposes/income-generating activities such as agriculture and business is low, a significant number spends borrowed money for conspicuous consumption such as marriage and purchase of consumer durables, said the report.