diary of a moneylender

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Economic and Political Weekly July 21, 2007 3037

Diary of a Moneylender Debates about the role of the moneylender in the rural credit scenario tackle two

conflicting images. One sees the moneylender as a resilient entity calling for his futureinvolvement in the process of rural development, and the other sees him as an exploiter to

be slowly weeded out. To get a more nuanced account of his role, a diary kept by a

moneylender operating in a village in the Anantapur district of Andhra Pradesh is analysed here. Even a cursory reading of this diary gives rich details on the scale and importance of

the transactions carried out by the moneylender. Through this diary, formal lendingagencies, be they banks or microfinance institutions, which have plans to supplant the

moneylender will gain rich insights into the role played by this ubiquitous entity.

S T SOMASHEKHARA REDDY

of the borrower, his caste, date, amounts and the purpose forwhich they were lent. The diary has entries from 1981 to 2004.The name of the borrower is mentioned in several ways – a fullname or a pet name. The purpose is recorded so that the moneylender

can provide details of the loan if the borrower contests it. Oncethe loan is repaid, the entries are struck off, without mentioningthe date of return. Lending in kind is also entered in this diaryin the same fashion. The amounts lent are largely sums belowone thousand, to agricultural labourers and his tenants. No writtendocumentation is executed between the lender and borrower.

Borrowings are basically classified as borrowings for consump-tion and borrowings for production. The borrowings for con-sumption are further classified as health, food, culture, customs,and household assets. All the festivals observed throughout theyear were included in the category of culture. All ceremoniesassociated with life such as puberty, marriage, delivery of a childand death were categorised as customs. Social necessities such

as visiting relatives, giving gifts, and hosting a visitor wereincluded as household activities. Household activities also inclu-ded expenditure on repairing a house, fixing bulbs and so on.

Borrowings for production were classified into asset formationand management. Management included inputs for variousprocesses from sowing to post-harvest activities. Manure sales andpurchase were also considered. If the purpose of borrowings wasundisclosed then that was treated as a loan for consumption. If foodgrains are borrowed for consumption, then they were treatedas borrowings for food. If an advance is received assuring supply of labour whenever a call was made it was treated as wage advances.

Interest Charged on the Loans

Irrespective of nature of transaction, interest charged is twoper cent per month. This was because there were specific castesthat borrowed from this moneylender. People from other castesdid not borrow from him. It did not mean that they did not needcredit, but they borrowed from other sources. Obviously, themoneylender was scrupulous about lending to people he knew.He lent only to people with whom he had economic relations(his labourers, or tenants). Therefore it was quite alright for himto charge a fixed, pre-determined and modest interest rate. Sincethe borrower group was homogeneous there was no person-specific risk premium charged. If the borrowed money was termed“exchange” it denotes mutual help and no interest was charged.No interest was charged when a close relative borrowed.

The moneylender is back in debates involving rural credit.The last two All-India Debt and Investment Surveys (AIDIS)show that the proportion of non-institutional debt in rural

areas has gone up from 9.8 per cent in 1991 to 15.5 per cent

in 2001, large proportion of which has been borrowings from thevillage moneylender. These debates tackle the two conflictingimages of the moneylender – a positive image, which sees themoneylender as a resilient entity, calling for his involvement inthe process of rural development and a negative image, whichsees him as an exploiter, responsible for rural distress[Padmanabhan 1988; Sarap 1991; Seth 1955, Sharma, Shishir andChamala 1998]. What is lacking in this debate is an examinationof the issues from the moneylender’s point of view. To correctlyidentify the role of the village moneylender in future rural creditstrategies, we need to examine purposes for which people borrowfrom him, identify any borrowing patterns, identify and analysethe changes in the borrowing patterns over the years and trace

the causes for such a change. Data on all of this is very difficult tocome by. This work is an attempt to fill that gap. The author hadaccess to a diary maintained by a village moneylender fromAnantapur district of Andhra Pradesh, in which recordings of hisloan transactions for over 20 years were given. Using these diaryentries, the borrowing patterns of those rural poor who borrowedfrom this moneylender from the year 1981 onwards, were analysed.

The moneylender is located in a village about 40 kms awayfrom the district town of Anantapur in Andhra Pradesh. He is oneof those landowners who practise moneylending along withfarming. Anantapur district is known to be the second-most drought-affected district in India. The village under examination hasan average rainfall below 400 mm, irrigation was from a lone tank in its command area and a few wells. Farmers cultivated ground-nut either as a mono-crop or as a mixed crop on rain-fed lands.

With the arrival of power-driven pump-sets, large areas werebrought under well irrigation. With the arrival of borewell techno-logy, geographical limitation placed by the traditional wells was over-come and more rain-fed land could be irrigated. Initially, in irrigatedareas only paddy was cultivated. Farmers are now experimenting withsericulture, grapes, sunflower and papaya crops on the irrigated land.

The Diary

Borrowing patterns are examined from the diary-entries main-tained by the moneylender. This is not a diary in the true senseas there are no chronological entries. Entries are made in the name



Economic and Political Weekly July 21, 20073038

Amounts Transacted

From a snap-shot of the diary for 22 years (Table 1), we seethat borrowings for production exceed borrowings for consump-tion, both with regard to frequency and the amount borrowed.This goes against the commonly-held wisdom that the poorresort to moneylender, mainly for consumption and distress-borrowings. In this case we see that the moneylender is lendingan increasing amount (in cash and kind) for productive purposes

like fertilisers, seeds and pesticides. Thus the argument extendedfor microlending – that lending, particularly at micro amountsas evidenced in this diary is more about access to financialservices than about interest rates may be tenable.

The transactions in cash for the entire period entered in thediary are around Rs 6,00,000 and 60,000 kilos of grain. Of this,a greater proportion of cash is lent for inputs for various processes(16.19 per cent) and for seeds (16.19 per cent). Inputs had highestborrowings in kind (77.71 per cent). The most common borrowingwas seed in kind (20.72 per cent) and fertilisers (13.07 per cent). Therewere other borrowings in kind for various activities of agriculture.

Borrowings in Cash and Kind

Cash was borrowed 1,502 times from 1981 to 2004. Of thisthe largest instance of borrowing was within Rs 100 (Table 2).Highest percentage of borrowing instances (29.43 per cent) waswithin Rs 50 and for about 300 times (19.97 per cent) it wasbetween Rs 51 and Rs 100.

Borrowings beyond Rs 1,000 are only 158 (10.52 per cent).This indicates that the range within which the poor have borrowedis within Rs 100. In almost 77 per cent cases the borrowingsare within Rs 300. Most of the smaller loans are for purposesof consumption.

Borrowings in kind, mainly paddy and coconut, for consump-tion purposes (food and social occasions like marriage) reduced

considerably since the late 1980s. The borrowing in kind thatpersisted was for fertilisers, which actually rose in the 1990s.

Groundnut is the main crop. There are problems in getting seedsfor every crop season. The problem is intensified when the seedsformed are not capable of germination due to low rainfall. Thosewho cannot afford to purchase seeds borrow seeds from farmersor the moneylender on differing terms. If the borrowing is fromthe farmers who have stocks of seed, the borrower can pay back in good quality seeds, acceptable to the lender, at the rate of 1:2.If the moneylender refuses to accept seeds, then the repaymentwill be at cost with two per cent interest per month.

Borrowings in kind ranged from foodgrains to chemical fertilisersand pesticides. The borrowings show no definite pattern. The

maximum borrowing is within 100 kgs (Table 3).

Borrowing within Each Category

Asset Formation

The borrowings for asset formation and management includepurchase and repair of agricultural implements, draught animals,bullock carts, construction and repairs of dwellings, cattle shedand pump house. We see that in 98 cases borrowing was for assetsformation and management. The total amount borrowed isRs 31,484 (Table 4). There were no borrowings from the year2001 onwards.

Interestingly, the number of borrowings shows an increase from1988 onwards. An examination of the kind of assets for whichmoney is borrowed after 1988 shows that borrowings are forpurchase of land, draught animals and cows. Though this trendwas present prior to 1988, the number was limited to one or twoin a year and restricted to purchase of cows. Comparatively, thenumber of such borrowings increased after 1988. The amountborrowed went as high as Rs 16,000 for construction of wellsin 1993. For purchasing land, the maximum amount borrowed

was Rs 10,000 – by two individuals in 1993.

Table 2: Range of Cash Borrowings

Frequency Per Cent

Rs 0-50 442 29.43Rs 51-100 300 19.97Rs 101-200 286 19.04

Rs 201-300 121 8.06Rs 301-400 80 5.33Rs 401-500 115 7.66Rs 501-1000 97 6.46Rs 1001-2000 28 1.86Rs 2001-5000 24 1.60Rs 5001-10000 7 0.47Rs 10001 above 2 0.13Total 1502 100.00

Table 3: Borrowings in Kind

Quantum (Kgs) Frequency Per Cent

0-10 155 19.4711-20 63 7.9121-30 44 5.5331-40 36 4.52

41-50 171 21.4851-100 179 22.49101-200 86 10.80>200 62 7.79Total 796 100.00

Table 4: Number and Amount Borrowed

Year Amount Borrowed

No (Rs) Average (Rs)

1984-1988 14 3,081 2201989-1993 56 12,324 2201994-1998 23 11,069 4811999-2004 5 5,010 1,002Total 98 31,484 321

Table1: Details of Transactions from 1981 to 2004

Category No of Amount No of Amount

Entries Entries (Per Cent)

Cash Kind (Per Cent) Cash Kind(Rs) (Kgs)

Consumption loanAsset 96 31,483 0 4.27 7.81 0.00Culture 168 19,253 476 7.47 4.77 0.49Custom 61 5,185 316 2.71 1.29 0.33Food 248 28,575 4200 11.03 7.09 4.36Health 150 17,114 53 6.67 4.24 0.06Household 95 14,439 34 4.22 14.95 2.12Marriage 42 38,818 1050 1.87 9.63 1.09

Production loan

Input process 313 60,293 2042 13.92 16.19 77.71Input seeds 466 65,300 74885 20.72 16.19 77.71Loan 119 69,194 292 5.29 17.16 0.30Fertiliser 280 30,211 12595 12.45 7.49 13.07Manure 39 6,375 158 1.73 1.58 0.16Manure sales 34 3,482 20 1.51 0.86 0.02Pesticide 64 5,538 2 2.85 1.37 0.00Advance wages 74 7,989 240 3.29 1.98 0.25

Total 2,249 403,250 96363 100.00 100.00 100.00




This change in borrowing pattern reflects the changing needsand financial abilities of the borrowers post 1990s. In the 1990s,there were changes in the landholding pattern in this village. Dueto out-migration of several landed families to nearby towns andcities, irrigated lands were given on lease to tenants, calling forlarger investments in draught animals and cows – which reflectthis change in the borrowing amounts. Groundnut was beingcultivated on these lands and the fodder of groundnut helpedin maintaining few cattle heads. The lands cultivated by the

tenants also equipped them with access to parcels of land wherethey could rear more sheep and cattle.

Culture

The category of culture is inclusive of all religious activitiesthat are performed by the borrowers. It can be festivals, poojas,and other religious ceremonies. Table 5 examines the amountborrowed both in cash and kind for cultural activities.

From 1981 to 2004, there have been 140 instances of borrowingsreflecting an amount of Rs 19,753 and 27 instances of borrowing ingrains amounting to 476 kgs. Borrowings in kind, mainly paddy andcoconut has stopped from the year 1988. It is only cash transactions

that have continued up to 2004. Even in that case, one observesthat the number of individuals borrowing has seen a reductionfrom 1996. One of the reasons for there being no borrowings inkind after 1988 could be the policy of the government of AP toextend rice at Rs 2 per kg. Additionally, in the 1980s many of theirrigated areas especially under wells were leased out to tenants.This might have helped them to hold stocks of paddy at home,thereby reducing the need to borrow paddy for the festivals.

Customs

This category includes all those activities that borrowers performwithin their family – life events such as birth, marriage, death

and other ceremonies (Table 6).An interesting observation is that most of the cash borrowings

are largely within few hundreds and has not exceeded Rs 200.Since the custom of feeding relatives is involved in all such cases,borrowing grains is necessary if one does not have stock. As inthe case of culture, apart from four stray instances of borrowingin kind way back in 1985, most of the borrowings for this purposehave been in the form of cash.

Food

All cash borrowed to purchase foodgrains was examined inthis category. The pattern of borrowing shows low borrowings

followed by high borrowings for few years. Borrowings continueexcept for the years 1992, 1997, 1998 and 2004.

One of the ways in which this can be interpreted is that highborrowings could be in a year following a year of drought andlow borrowings could be followed after a year of bountiful crop.According to a study, this region experiences more than fivedroughts in any given decade (APRLP). Analysis of pattern of borrowings of foodgrains confirms such an observation. Inter-estingly, in the drought years of 1999 and 2000 there were noborrowings; in contrast the drought years of 2002 and 2003 hadborrowings. As the number of individuals who have borrowedwas small, this can be neglected. As per the information providedby the farmers, drought in these two years affected the availability

of groundwater and no food crops were raised. However, thisdid not increase borrowings, as the programme for employmentassurance was in operation in this village for these two years.This points out to one of the direct benefits of such cash for work programmes – it puts cash into the hands of the rural poor intimes of distress, thereby reducing their need to borrow cash fromthe moneylender.

However, we need to understand this data with the perspectiveof change in the cropping pattern. From the 1980s no millet crops

are cultivated on rain-fed land. Paddy is being cultivated in theirrigated lands. Ragi and jowar are cultivated on irrigated landsin small areas between two crops of paddy. This is generally tomeet the household consumption requirement. Therefore, arriv-ing at a conclusion that only drought will impact borrowing of foodgrains may be erroneous. An attempt was made to examinethe kind of foodgrains borrowed over the year. Interestingly, apartfrom jowar, the demand for ragi and paddy was there for all theyears, but the grains demanded and the quantum demanded keptalternating between ragi and paddy. This uniform pattern of demand for foodgrains indicates lack of strong correlation betweenborrowings for food and incidences of drought. This may be dueto total dominance of groundnut under rain-fed areas and pro-

duction of these foodgrains only under irrigated conditions. Mostof the rural poor have rain-fed lands, on which the major cropgrown is groundnut. The rich own sources of irrigation, and paddyand other foodgrains are grown on irrigated lands. The poortherefore, have no option but to borrow foodgrains like paddyfrom the moneylender.

An attempt was made to examine the purpose for which cashwas borrowed to meet food requirement. It was observed that75 per cent of cash borrowings were for purchase of rationssupplied through the public distribution system (PDS) (Table 7).This is a reflection of the inability of the poor to purchasefoodgrains, even when it is offered at a lower price. It can also

Table 5: Borrowings for Cultural Activities over the Years

Year Borrowings

Number (Rs) Average (Rs)

1981-1986 19 864 441987-1991 47 5,154 1101992-1996 52 9,555 1841997-2001 12 2,200 1842001-2004 10 1,980 198Total 140 19,753 141

Table 6: Borrowings to Perform Rituals

Year No Amount Borrowed Cash Average(Rs)

1984-1988 21 1,345 64

1989-1993 20 2,040 1021994-1998 11 1,300 1181999-2004 5 500 100Total 57 5,185 91

Table 7: Purpose for Which Cash was Borrowedunder Category ‘Food’

Purposes for Which Borrowings Were Made under the

Category “Food”

Year PDS Kerosene Flour Mill Betel Leaf Coconut Chicken Health

1984-1988 15 1 2 0 2 0 11989-1993 13 0 2 2 1 0 01994-1998 5 0 0 0 0 1 01999-2003 3 0 1 0 0 0 0




be a reflection of the timings followed by the PDS. Thus wemay be in a paradoxical situation where the price subsidy givenfor the purchase of foodgrains is possibly negated by the interestpayments on borrowings, thus indirectly diverting the subsidiesto where it was possibly not intended. Foodgrains are beingsupplied at a time when the target group may not have the requiredcash on hand. Instead of forgoing the quotas of grains that theyare eligible for, the poor have preferred to go in for loans fromthe moneylender to buy them. The other purpose for which the

amount is borrowed is for milling paddy into rice. This appearsto be a reflection on the PDS. Either the supplied quantum mighthave fallen short or the poor may not have been able to purchasethe grains when it is up for sale.

Rest of the borrowings though insignificant, are shown in order topoint out to some of the severe compulsions that the poor have.The borrowings of cash for food needs have reduced almost totallyfrom 1993 onwards and are absent from 1998 onwards. The reasonsfor this are to be found in the changes in the landholding patternsin this village, post the1990s. The poor now have access to patchesof irrigated land on which paddy could be grown and stored forself-consumption. The employment assurance projects initiatedin this village also put cash incomes in the hands of the poor.

Health

The poor also borrowed from the moneylender for health-related purposes.

The number of borrowings under this category is 150 and theamount borrowed is Rs 17,114. Fifty-three kgs of grains werealso borrowed in kind. Interestingly, there are very few borrow-ings in kind and they cease after 1987. Number of borrowersborrowing in cash increases till the year 1989. There are highcash-borrowings in 1992 and 1994 as well. The average borrow-ings are also higher compared to those for rituals. This indicatesthat the vulnerability to health contingency is not totally elimi-

nated. In most of the cases, the borrowings are to visit a doctor.There are also a few cases where money is borrowed to overcomeblack magic. These borrowings for meeting health contingenciesfall in line with findings in several studies of rural poverty,arguing that health is a major reason for the rural poor slippingback into poverty [Krishna 2003]. A recent paper [Banerjee andDuflo 2006] also summarises several surveys where the poormention health as the major cause for stress.

Household

All those borrowings made to meet expenses such as visitingrelatives, house repair, paying electricity bills, purchase of clothes,

payment of school fees, sending and bringing daughter/daughter-in-law, hosting guests at home, were all included in this category(Table 9). A surprise item included “undisclosed personal expense”– often for consumption of alcohol. The major item of expenditureis for visiting relatives in other villages. This appears to be asocial compulsion required to renew social relations. Unlike othercategories, this category does not show change over the years.

Agriculture

Borrowings for agricultural activities have been captured asborrowing for seeds, for purchase of fertilisers and pesticides.All the borrowings were to perform other activities such as paying

wages for labourers, sowing, weeding, harvesting and post-harvest activities are captured as single area called “input foragricultural processes”.

Seeds, Agricultural Inputs, Fertilisersand Pesticides

Seeds are essential inputs in farming and they have occupiedan important place in the transactions. An examination of the

pattern of borrowing shows that over the years borrowings interms of cash was more than borrowing in kind. Quantum of borrowings in cash for purchase of seeds became predominantwhen farmers preferred to go in for sericulture in 1985 andsunflower in 1996. Prior to cultivation of sericulture and sun-flower the demand for loans was only for seeds of paddy,groundnut, ragi and other crops, where the seeds were availablewith the moneylender. Seeds selected from previous crops weredistributed as loan. Borrowers were supposed to return seedstwice the quantum received. However, this process underwenta change when high yielding variety (HYV) seeds of groundnutwere introduced in 1991 and sericulture was also introduced intothis region. Poor farmers then had to borrow heavy amounts, as

these seeds have to be procured from an outside agency. Withplanning for two crops of sunflower, the amounts borrowed byeach farmer in a year also increased. When large number of farmers opted for sunflower in 2003, the demand for credit hadincreased several folds. In that year, farmers had raised three cropsof sunflower. Even after such a change, farmers continue toborrow seeds in kind for paddy, groundnut and ragi crops. Thedemand for loans increased tremendously from 1988 onwardsdue to release of irrigated lands to tenants.

The agricultural workers who became tenant farmers had nocapital to meet all the expenses. This compelled the new farmersto borrow for every activity concerned with farming. Such demandsincreased after the introduction of sunflower.

Since chemical fertilisers have to be procured from an outsideagency, farmers who have no financial capability to borrowmoney to purchase chemical fertilisers borrow in kind from themoneylender. Examination of borrowings of fertilisers shows thatafter 1996 quantum of cash drawn to purchase fertilisers andborrowing fertilisers has almost doubled. This is due to intro-duction of sunflower in the region. All those who went in for

Table 8: Borrowings for Health Contingency

Borrowings for Health

Year Number (Rs) Average (Rs)

1983-1987 33 1,322 401988-1992 60 6,247 1041993-1997 35 6,495 1861998-2002 14 1,450 1042002 7 1,500 2142003 1 100 100Total 150 17,114 114

Table 9: Borrowings for Household Requirements

Cash Borrowings for Household PurposesYear Number (Rs) Average

1984-1988 22 1,067 491989-1993 36 6,415 1781994-1998 16 2,375 1481999-2004 21 3,283 156Total 95 13,140 138




sunflower had to borrow high quantum of fertilisers. Along withsunflower introduction of HYVs in paddy has also increaseddemand for fertilisers.

The average utilisation of chemical fertilisers increased after1996. It was low as long as paddy was cultivated. Farmers whoare very poor depend on the moneylender to supply fertilisersas they lack knowledge on inputs, especially various types andpurposes for which they have to be utilised. Additionally, theother constraint on them is the quantum. Many dealers may notsell the small quantum required by the poor. Moneylenders take

on the role of input traders by buying in huge quantities andlending it to the farmers. Those farmers who have the knowledgeon various inputs and require fertilisers in bulk borrow cash ratherthan borrowing in kind.

An attempt was made to compare borrowings for purchase of manure with that of chemical fertilisers. It was observed thatborrowing cash to purchase manure increased up to 1996 butlater declined, and picked up from 2002. Utilisation of manure saw asudden increase from 1988 due to introduction of sericulture cropand release of irrigated land to tenants for paddy cultivation. How-ever, arrival of sunflower had a negative impact on use of manure.

Pesticides are part of modern day agriculture as are seeds andfertilisers. Pesticides were introduced for mulberry and for HYV

paddy. Later, it was utilised even for other crops such as ground-nut that were not traditionally sprayed with pesticides. Theutilisation of pesticides increased with more area under HYVpaddy and sunflower.

Borrowings in kind persist in agriculture, especially for pro-curement of seeds, fertilisers and other agricultural inputs.

Changes in the Borrowing Pattern

From the entries in this diary, we see that over a period of 20years two major patterns emerge regarding borrowings from thismoneylender. There is a decline in borrowings for consumptionpurposes (especially for culture, customs and food) and rise in

the borrowings for production purposes (buying seeds, fertilisersand pesticides). To analyse the reasons for these patterns, wehave to look at both – the internal factors relating to production,land use pattern and changes in the social structure of the village,and external factors relating to changes in policy and operationof government schemes in this village.

Changes in the Production and Land Use

One of the major changes observed in this village is the increasein number of tenants both under irrigated and un-irrigatedconditions. The dominant landowning caste group – the Reddys,were the first to lease out land for tenants, initially, land under

rain-fed conditions and later on, land under irrigated conditionsas well. Migration appears to be the major factor in leasing outland. Due to frequent drought and poverty, many of the poorerfamilies have migrated in search of jobs, preferring to lease outtheir small patches of land to the landless. Loss of working hands,especially the youth, has also influenced leasing out. One hundredand eighty four farmers benefited from such leasing out. In the1980s the tenants were limited to rain-fed land, however, from1991 even irrigated lands were leased out. Nearly 65 tenants are

cultivating 283 acres of irrigated lands. Areas under tenancy haveincreased, and at present tenants cultivate 116 acres out of 283acres of irrigated land (Table 13). This increase in number of tenants changed the relations between the landowners and tenantsand between cultivating farmers and the tenants.

The changeover to tenancy had a mixed impact on the bor-rowing conditions of the poor. Cultivation of groundnut on thetenanted land helped the rural poor to acquire lump sum incomesat the end of cropping season. These incomes did help in pre-venting the tenant from going to the moneylender for smaller

Table 12: Borrowings in Kind for Agriculture (kgs)

Seeds Fertilisers Agr Inputs

1985-1989 6,382 190 1,1831990-1994 10,891 349 501995-1999 10,642 434 5782000-2004 9,207 332 232

Table 13: Irrigated Area under Tenancy

1970s 1970-80 1980-90 1990-2000 >2000 Total

No of wells 1 14 18 17 50

Area irrigated 0 6 84 106 87 283No of tenants 0 0 15 35 15 65

Area irrigated by tenants 0 0 19 65 32 116

Table 11: Borrowings to Meet Various Processes in Agriculture

Average (Per Person) Cash Borrowings for Agriculture (Rs)

Seeds Agr Inputs Fertilisers Pesticides

1985-89 54 7 198 601990-94 44 10 300 751995-99 73 13 61 942000-04 70 13 53 102

Table 10: Borrowings for Inputs

Year Seeds Agr icultural Inputs Ferti lisers Pesticides

Number (Rs) Number (Rs) Number (Rs) Number (Rs)

1985 1 50 1 10 1 400 NA NA1986 4 46 4 63 1 210 1 131987 4 216 5 36 1 650 1 2001988 3 113 11 105 3 170 3 1251989 1 280 18 76 2 150 1 201990 4 94 14 178 3 147 3 3921991 6 365 18 174 1 870 1 601992 11 319 18 173 1 450 6 5751993 6 350 32 225 2 300 3 1011994 9 444 15 259 1 635 8 4451995 5 476 12 173 1 300 3 2051996 10 398 29 261 13 417 7 8471997 5 607 19 261 5 360 6 4501998 7 589 7 314 7 506 2 2601999 5 268 25 193 2 120 4 3152000 6 476 23 157 8 349 4 340

2001 6 599 11 157 8 457 0 02002 6 517 27 146 6 320 7 8802003 17 1,151 16 278 10 389 4 3102004 9 328 6 333 4 398 NA NA

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1985-1989 1990-1994 1995-1999 2000-2004

R s

Seeds Fert ilizers Pestic idess

Figure: Total Cash Borrowings for Agriculture




amounts, especially for consumption purposes. With cultivationof pulses and millets, tenants had access to food items, reducingtheir borrowings for food. The fodder of groundnut helped inmaintaining cattle, since the tenant now had access to parcelsof land where one could rear more sheep and cattle. In this village,tenancy is closer to five acres for rain-fed lands and one acreunder irrigated conditions. Of the 1885.25 acres of cultivableland in the village, tenants cultivate 474.5 acres of land. If thelandowner invests on seeds, fertilisers and pesticides, the tenant

has to pay an interest of 2 per cent on the amount per month,which will be deducted when the sales are made, or after theharvest. Of late, tenants have started investing in these inputsthemselves to avoid paying interest to landowner. Therefore, wenotice that the production-related credit by the moneylender ison the rise. Borrowings for inputs increased after the tenantsaccessed irrigated land, as the number of crops to be cultivatedin a year was more than two. Compared to the number and kindof borrowings prior to cultivation of irrigated lands, number of borrowings after cultivating irrigated lands has increased. Thiscan be clearly seen in case of inputs such as fertilisers andpesticides and inputs for various processes in agriculture.

This change in the land-cultivation patterns follows an India-

wide trend, where the proportion of the landless householdsleasing in land has increased from 28 to 35 per cent from 1971-72 to 1992 (NSSO, 48th round). This phenomenon of “reversetenancy” is found to be operating on a larger scale than whatis being captured by official statistics and has important impli-cations for the rural credit markets. Since these tenants now haveaccess to cultivable lands, they require agricultural inputs likeseeds, fertilisers and pesticides. Borrowings from the formalsources like banks and primary agricultural cooperatives require

a formal title to the land. Therefore, they have to resort toborrowing from the informal sources like the moneylenders. Andthis has resulted in the moneylender in the rural areas also playinga key role in borrowings for production.

Land Released to Landless from Government

Under programmes to equip the landless with land, the gov-ernment of Andhra Pradesh has released government land. So

far 510.99 acres of land has been released to the landless. Of them the biggest beneficiaries are all those caste groups thatbelong to the backward community (BC) (71.62 per cent), sched-uled caste are able to get 130 acres of land (25.44 per cent) andothers about 15 acres of land. The release is highest in between1970 and 1980 (319.69 acres). About 105 acres of land wasreleased in 1980 which happens to be the biggest chunk. Thesereleases enabled many landless and marginal farmers to gain land.Such gains helped the landless to move on to the category of a farmer, which is also responsible for increased production-related borrowings from the moneylender.

Employment Assurance

An important intervention under the watershed developmentscheme was the employment assurance by the government of Andhra Pradesh. This scheme was implemented through an NGO(Rayalaseema Development Trust (RDT)) from 1997. Theobjective of the scheme was to utilise the activities withinwatershed development programme to create employmentopportunities. This programme was in operation for nearly sevenyears and its activities; especially placing pebbles within each

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field to create gully plugs and bunds helped the marginal farmersand others to find employment. Experimentation in the first yearto build bunds and check dams did not find favour among thevillagers, as that did not help those who were in need of employ-ment especially in the summer months. At the commencementof the second year in the stakeholders workshop, farmers andthe labourers preferred to clear pebbles in the fields rather thanindulge in construction activities. An amount of Rs 10,21,538is spent exclusively on this activity. Approximately, 8,513 mandays

of employment were generated in a year. This seems to have hadan impact on the economic conditions of those who depend onearnings as agricultural labourers. Such employment increasedthe cash income of the poorer families and prevented the poorfrom borrowing smaller amounts from the moneylender.

Increase in Irrigated Area

One of the most important interventions that had an impact onavailability of employment opportunities for the poor is increasein area irrigated by wells. From barely six acres in the 1980s, itincreased to 237.5 acres by end of 2004. As the number of cropsto be irrigated was more than two, the employment opportunities

of the poor increased. The crops cultivated under these irrigatedareas were largely paddy, jowar or ragi till 1996. Sunflower lateron dominated these irrigated areas from 1996. In the in-betweenyears few attempted to cultivate vegetable crops. Since thesecrops tend to be more input-intensive, it did have an impact onthe borrowing patterns of the poor.

Social Factors

The reason for preferring tenancy and leasing out was migrationof almost all the educated youth from the upper castes to urbanareas in search of employment opportunities. Unable to managethe holding on their own, these communities preferred tenants.

In case of SC, as more and more land is available for tenantsand for leasing, they stopped migrating to urban areas duringdrought. The other reason for preferring tenants and leasing outwas scarce availability of labour during the peak seasons. Sucha situation compelled the aged landowners to prefer tenants orto lease out their lands. Irrigated areas were also being leasedout in the 1990s due to similar reasons. With availability of moreland under tenancy and leasing, agricultural labourers tried toown instruments of production such as a pair of bullocks oranimals for ploughing, plough and other instruments, which isreflected in the borrowing patterns.

Conclusion

Analysis of the moneylender’s diary throws up important cluesabout the pattern of informal borrowings in a typical Indianvillage. Over two decades, about 76.53 per cent of borrowingsare within Rs 300 and nearly 30 per cent of the borrowings arewithin Rs 50. However, the diary also points to a gradual declinein demand for smaller amounts reflecting probably the changein the economic position of the borrowers – agricultural labourersbecoming tenant farmers, as lands got increasingly leased outto them. This is also seen in the growing share of production-related credit in the diary entries of the moneylender. Borrowingsin kind, except that of seeds declined. The highest percentageof the borrowing in kind (34.72 per cent) was in the form of

seeds and materials to carry out other activities connected withagriculture. This further reiterates the role of the moneylenderin satisfying the production needs of the rural borrowers.

The two crucial periods, i e, 1988 and 1996 are indicative of changes that have taken place within this village, which affectthe borrowing patterns. Firstly, in the beginning of the 1980s,18 Reddy families, who were controlling almost 20 per cent of land within the village, were forced to lease out lands to tenants.Such a release empowered the poorest of the families especially

the landless. This decision was complemented by the release of land from the government to the landless. However, this leasingout of land to the landless had mixed impact on the borrowingpatterns from the moneylender. The poor acquired incomes incash and kind at the end of the cropping season, which reducedtheir dependence on the moneylender for small amounts. Thetenant had access to parcels of land where he could rear moresheep and cattle. Introduction of rice at Rs 2 per kilogram helpedto meet at least partly the food requirement of the family. But,if tenancy has reduced borrowings in terms of foodgrains, it hasincreased borrowings of tenants for all the inputs for farming.There was a greater dependence on the moneylender for biggeramounts and production-related credit.

This analysis clearly demonstrates the process of convertinglandless labour into peasants. Formal lending agencies, be itbanks or microfinance institutions, aiming to supplant themoneylender in the rural credit scene, should learn from the richinsights that this diary has to offer.

Email: [email protected]

[Somashekhara Reddy was a research fellow at Indian Institute of Manage-ment Bangalore. This was a research project he had undertaken as a partof the Sir Ratan Tata Trust Fund for Research Collaborations in Microfinanceinstituted at the Indian Institute of Management, Ahmedabad. SomashekharaReddy unfortunately passed away due to a cardiac problem in 2006. Thispaper is culled out of the work-in-progress report submitted by him. It was

also presented at the second annual conference on Public Policy andManagement (April 12-14, 2007) at IIM, Bangalore.]

References

Bannerjee, Abhijit and Esther Duflo (2006): ‘Economic Lives of the Poor’,MIT Poverty Action Lab Working Paper, October.

Krishna, Anirudh (2003): ‘Falling into Poverty: Other Side of Poverty

Reduction’, Economic and Political Weekly, February 8.

Padmanabhan, K P (1988): Rural Credit: Lessons for Rural Bankers and

Policymakers, Intermediate Technology, London.

Reserve Bank of India (1954): All India Rural Credit Survey, Reserve Bank of India, Mumbai.

– (1969): Report of the All India Rural Credit Review Committee, Reserve

Bank of India, Mumbai.

Robinson, M A (1991): ‘Evaluating the Impact of NGOs in Rural PovertyAlleviation: India Country Study’, ODI Working Paper No 49, Overseas

Development Institute, London.Rudra, A (1982): Indian Agriculture: Myth and Reality, Allied Publishers,

New Delhi.

Sarap, K (1991): Institutional Agrarian Markets in Rural India, Sage

Publications, New Delhi.

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University Research Bulletin No XV.Sharma, Shishir (1998): ‘Image of Moneylender: Exploiter or Servant of

the Poor? Case for Review’, Journal of Rural Development, Vol 17,

October-December, No 4, pp 567-618.

Sharma, Shishir and S Chamala (1998): ‘Moneylender and Banker in

Rural India: The Images from Below’, Savings and Development, No 1,

1998-xxii, pp 106-28.

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