Institutional Change in Informal Credit: Through the Urban–Rural Lens

Abstract

The years of mediocre agricultural growth and growing agrarian crisis in the twenty-first century have been accompanied by dramatic changes in rural financial markets in which locally dominant institutions have disappeared (the money-lending dynasty; chit funds, grain mundi credit), entirely new ones have appeared (self-help groups; instalment credit from mobile traders from Arni) and rather few have persisted (pawn-broking, informal lending, formal banking) in just over a decade. Detailed semi-structured interviews with stakeholders and observational evidence from 1993–94 and 2006 were assembled from one agricultural village near Arni (one of the three ‘survey’ villages studied since 1973). Its dynamic financial sector was then evaluated to test theories about change derived from old and new institutional economics. The many dimensions of institutional change observed in the village appear to be the result of complex interactions of social, historical and economic factors which are excluded from the mainstream of both approaches to theory. Both old and new institutional economics were thus found to be quite severely wanting and suggestions for a richer theory of institutional change are offered.