PhD

The study entitled 'Credit Marketing in Rural Kerala - Product Mix
and Consumer Behaviour Analysis' was undertaken to examine the rural credit
marketing by different agencies with special reference to product mix vis-a-vis
rural credit needs; to study the consumer behaviour with respect to institutional
choice for credit, credit use pattern, and repayment of credit; and to identify
the impediments in new product development and product mix modifications.
The study area was limited to the state of Kerala. By employing a
multi-stage random sampling technique 300 households and 13 banks were
arrived at as sources of primary data. The data were collected through
structured schedules. The study period was 10 years from 1990. In addition to
priority indices and agreement indices, other commonly used econometric and
statistical tools formed part of methodology for data analysis.
The analysis of the literature revealed that credit marketing was
found gaining in prominence especially during the 1990's. Competition was
cited as the most compelling reasons for the banks to go the marketing way.
To make credit marketing effective, among other things, academicians
suggested product modification, procedural simplification, identification of new
needs, and new product development. Against this background, our analysis
of the collected data revealed the following.
The institutional choice behaviour of the respondents revealed that
there was still prominence to price mix in the rural credit market studied. Even
then, other marketing mix elements like product mix, promotion mix etc. were
also important to attract customers. Efforts were required from the part of

institutional lenders to attract customer segments like labourers, lower-income
group etc., it was felt. These were potential segments, which contributed
substantial business to the informal sector. The informal sector could attract
them by focussing primarily on the product mix features and least on the price
mix factor.
The analysis of repayment behaviour brought out that the
repayment was primarily a self-driven act. However, the personal interest that
the lender took had a strong influence on the recovery performance. That was
the major reason why the informal sector could keep the default rate at a very
minimal level. Easy availability of a second loan upon prompt repayment of a
previous one was, indeed, a motivation for prompt payment. It appeared that
low rate of interest, at times, acted as a reason for borrowers to soft-pedal on
repayment. This was particularly true in case of those who were having loans
simultaneously from different sources at different interest rates. Most often,
default was not that willful; hence it would be better to give a room for
negotiability in such cases. Nonetheless, presence of willful defaulters was
also established. Serious action in such cases would not only improve
recovery from them but also ensure prompt payment from others. Further, the
reasons for default as also the motivations for prompt payment were identified.
Inter alia, they suggested that repayment would improve if credit products
offered were matching perfectly with credit needs of the borrowers. If there
were mismatches, that would lead to loan diversion and ultimately to poor
repayment.
The credit use behaviour, studied in this report, brought out that
there was widespread diversion of amounts from the expressed purposes to

other purposes by the borrowers. Such loan diversion was heavy in case of
most agricultural loans, especially in crop loans and loans for land
development. Analysing the reasons for diversion, the study found out that
substantial number of borrowers was predetermined to divert the loans. Such
predetermination meant that the actual purpose of taking a loan was often
different from the expressed purpose. Lack of attractive and suitable credit
products for the actual purposes might have been a reason behind the
predetermination to divert loans. Absolute nonexistence of credit products for
certain category of needs was also cited as a major reason for loan diversion.
Marketing theory always held that the products offered should
correspond well with the needs of the customers. Hence, the present study
compared the credit products offered by banks with the credit needs of the
customers in the relevant market. The comparison revealed that banks
attached priorities to certain credit needs and neglected certain others while
designing their product mixes. This prioritization and neglect were in
divergence with the customers' actual priorities and need magnitudes. Further,
in their product intensiflcation efforts also, banks continued the same
prioritization and neglect even when the need intensity of the (bank) prioritized
needs had actually come down and (bank) neglected needs had actually gone
up. Thus, the study revealed that there was a mismatch between rural credit
needs and credit products offered to address the needs. This mismatch was
found widening over the years. This was primarily because of the reason that
the need intensity had been changing over the years but the banks might have
failed to appreciate the same in their product intensification efforts.

Customers have responded to this mismatch mainly in four ways.
One group had borrowed exclusively for the purposes offered by banks and
utilized the amounts for the same purposes. Another group kept away from
borrowing itself for want of attractive credit products. A third group went for
informal sources that had better matching credit products to offer. More
interesting, the fourth group, which was comparatively larger in size, borrowed
loan showing the bank prioritized purposes and diverted the amounts for their
own priorities. Looked at from a business management angle, the reaction of
the last three groups could not be considered as positive and would be
detrimental to the business interest of banks. Hence, to make the credit
marketing more effective and to increase their market share, banks might have
to improve their product mixes in such a way that the products would match
well with credit needs of customers defined in the target market.
Credit required for the children's education was a prominent
category of need, which did not come to any serious notice of the banks.
Money required for purchase of land, conducting ceremonies like marriages
etc. could also be considered for designing marketable credit products. Also,
higher emphasis might be given to trade and small business as it was found to
be an important emerging area. Further, it appeared that emphasis could
slightly be reduced on traditional areas like agriculture and industry. Besides,
product ideas like 'untied loans' - loans that could be used for any purpose -
might be considered for redesigning the product mix. Furthermore, efforts
might be taken to sensitize the bank officials about the need for new product
development and product mix modification. In this regard, certain branch level
impediments like fear in taking initiative, lack of knowledge and skill, restrictive
internal and external legal frame work etc. were to be removed.