Expanding access to finance in rural areas has been an important focus of banking sector policy for a number of decades and while there is no doubt that there has been progress, the overall situation that obtains currently is very grim from a cost, risk, and effectiveness perspective. While India as a whole has a low credit to GDP ratio of about 70 per cent for agriculture, at less than 36 per cent, it is even lower, indicating poor outreach of formal credit to the sector despite all the policy priority that has been given to it. This has resulted in the continued prevalence of informal indebtedness among farmers – only 14 per cent of the marginal farmers (with land holdings less than 1 hectare) were taking institutional credit in 2009, with the remaining largely relying on informal sources of credit for their credit needs1 .
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