Formal Rural Credit Lowers Borrowing Costs: NABARD

Rural credit shifts to formal sources, reducing interest costs and boosting margins.

India's rural credit ecosystem is increasingly getting formalized and borrowers across the country are preferring formal sources due to a variety of reasons, including interest subventions and subsidized credit, National Bank for Agriculture and Rural Development (NABARD) Chairman Shaji KV told reporters on Sunday.

"The access of credit from informal sources is actually coming down very drastically. That means that a formalization of rural credit is happening. (Formalization of rural credit) in itself will leave a lot of margins at the hands of the rural people, because if you access an informal source, the rate of interest will be higher, thus margins before them will be lower," Shaji KV told a press conference at the ongoing six-day Grameen Bharat Mahotsav in Bharat Mandapam here.

Interest-subvented loans through Kisan Credit Cards, agri fund schemes, and a cap on the rate of interest on informal means put together helped formalization of rural credit, he said.