Effect of Weather Changes on the Credit Risk in Agricultural Microfinance: An Indian Perspective

By : Suhail Ahmad Bhat, Mushtaq A. Darzi

Page No: 413-423

Abstract
The objective of the paper is to determine the impact of weather changes on credit risk of loans granted to small scale farmers by microfinance institutions. Generally small-scale farmers in developing countries are undersupplied with credit by microfinance institutions, because they believe that lot of risk is involved in loan repayment from farmers. Therefore, the study employs secondary data obtained from Indian Metrological Department regarding average rainfall received during the four seasons pre-monsoon, monsoon, post-monsoon and winter. With regard to credit risk in agricultural microfinance, data was obtained from the Reserve Bank of India depicting annual leading and outstanding towards marginal, small, medium and large farmers by schedule commercial banks in India. Results of the study depicts that rain has insignificant impact on credit risk of loans granted to marginal, small, medium and large scale farmers. The study will guide farmers and policy makers in understanding the real cause of credit risk and nonpayment of debt, which is the main cause of farmers’ suicide in India. The study has taken data of the last 27 years from 1985-2011. This is the first empirical study that determines the effect of weather changes on credit risk of micro-loans granted to small-scale farmers in India.

Authors :
Suhail Ahmad Bhat : Research Scholar, Department of Management Studies, University of Kashmir
Mushtaq A. Darzi : Professor, Department of Management Studies, University of Kashmir.