Dynamics of co-operative credit and its impact on agricultural development in Kerala

Abstract

The thesis titled “Dynamics of co-operative credit and its impact on agricultural development in Kerala” examines the long-term development and role of co-operative agricultural credit in Kerala and its impact on agricultural growth and farmers’ livelihoods during the period from 1980-81 to 2022-23. Co-operative institutions, especially Primary Agricultural Credit Societies (PACS) and Primary Co-operative Agricultural and Rural Development Banks (PCARDBs), have been important sources of rural finance in Kerala. They provide loans to farmers for crop production, irrigation, machinery, plantation development, and other agricultural activities. Despite the importance, the distribution and effectiveness of co-operative credit have differed widely across districts and over time. This study aims to understand how co-operative credit has evolved, how it has contributed to agricultural development, and how it has affected individual farming households in Kerala. The study is based on both secondary and primary data. Secondary data were collected from government reports, institutional records, and official databases relating to co-operative credit and agricultural development. These data cover all districts of Kerala and span more than four decades. Primary data were collected from 160 farmer borrowers selected from four districts, viz., Pathanamthitta, Alappuzha, Malappuram, and Palakkad. These districts were chosen to represent areas with low and high levels of credit disbursement and different agricultural systems. This combination of data sources enabled a comprehensive analysis of both long-term trends and household-level impacts. The analysis was guided by three main objectives. The first objective was to examine the changing pattern and growth of co-operative credit in Kerala. The second objective was to assess the contribution of co-operative credit to agricultural development, while the third objective was to study the impact of co-operative credit on farmers’ income and standard of living. Various statistical and econometric tools such as growth rate analysis, inequality measures, cointegration tests, causality analysis, and regression models were used to achieve these objectives. iii To study the growth and performance of PACS and PCARDBs, the entire study period was divided into three phases, which were identified on the basis of structural break analysis. The first phase (1980-81 to 2001-02) was a period of rapid expansion and institutional strengthening. During this period, most districts experienced strong growth in membership, deposits, share capital, working capital, and credit disbursement. Farmers increasingly trusted co-operative institutions and deposited their savings in them. Deposit mobilisation became the main source of funds, which reduced excessive dependence on external borrowing. Both short-term crop loans and long-term investment loans expanded, indicating rising agricultural activity and investment. However, some districts such as Kottayam and Thrissur showed relatively weaker growth, suggesting early signs of saturation or limited investment demand. The second phase (2002-03 to 2011-12) was a period of transition. During this period, the growth of co-operative institutions slowed down in many districts. Competition from commercial banks, the spread of Kisan Credit Card scheme and changes in rural finance policies affected the functioning of PACS. Deposit mobilisation continued, but growth in share capital weakened in several regions. As a result, co-operatives became more dependent on borrowings from higher financing agencies. While some districts such as Palakkad, Kozhikode, and Malappuram performed relatively well, others like Wayanad, Kottayam, and Thiruvananthapuram recorded stagnation. Credit expansion also became concentrated among fewer borrowers in some areas, reducing inclusiveness. The third phase (2012-13 to 2022-23) represents a period of partial revival and institutional stabilisation. Membership and share capital increased in many districts, reflecting renewed confidence among farmers. Internal resource mobilisation improved, and dependence on external borrowings declined compared to the previous phase. Long- term investment credit expanded in several districts, especially for plantation development, irrigation, and mechanisation. However, short-term and medium-term credit growth slowed in many regions due to increased competition from banks and digital credit platforms. Performance across districts remained uneven, with some districts showing balanced growth while others lagged behind. A similar analysis was carried out for PCARDBs, which mainly provide long- term agricultural loans. In the first phase, several districts such as Wayanad, Palakkad, iv and Ernakulam recorded strong institutional and credit growth. However, dependence on external borrowings was high in many areas. In the second phase, institutional restructuring improved financial stability in some districts, but growth remained selective. In the third phase, long-term credit expanded sharply, indicating renewed investment activity, but this expansion was often supported by external funds rather than internal resources and as a result, concerns about the financial autonomy persisted. The study also analysed the regional distribution of medium-term and long-term co- operative credit. The results showed that credit distribution in Kerala has been highly unequal across districts throughout the study period. A few districts such as Ernakulam, Kottayam, Thrissur, and Kollam consistently received a large share of investment credit, while districts such as Idukki, Wayanad, Kasaragod, and Alappuzha remained under- served. Even after adjusting credit amounts based on cultivated area, inequalities remained high. This indicates that institutional strength, cropping patterns, and historical development play more important roles than land size in determining the credit access. Established co-operative networks and diversified commercial agriculture enabled certain districts to attract more credit, while weaker regions faced persistent constraints. To assess the contribution of co-operative credit to agricultural development, the study examined the long-term and short-term relationships between credit and agricultural indicators. The results show that co-operative credit has a stable relationship with cropping intensity, fertilizer use, irrigated area, plantation area, and agricultural output. This means that credit and agricultural development have moved together over time. In the short run, credit availability was found to encourage better farming practices and investment in agriculture. However, the impact of credit on output and income was gradual rather than immediate. The micro-level analysis based on primary data provides important insights into how farmers use co-operative credit. The sample farmers were mostly older, experienced cultivators with low levels of formal education and small landholdings. This reflects the ageing nature of agriculture in Kerala and limited participation of younger generations. Most households belonged to the medium-income category, with income levels influenced by crop diversification and non-farm activities.The study v found that the amount of credit sanctioned to farmers was mainly determined by collateral availability and existing indebtedness rather than by actual production needs. Factors such as land size, education, and cultivation expenses had little influence on loan size. This indicates that lending decisions were guided more by institutional rules and risk considerations than by farm requirements. As a result, credit allocation was not always aligned with the productive potential. The study also found that farm income was influenced mainly by cultivated area, production expenditure, and farming experience. The amount of co-operative credit borrowed did not have a significant direct impact on income. This suggests that credit alone does not guarantee higher income unless it is used effectively for productive investments. The analysis of loan utilisation revealed that a considerable number of borrowers diverted loans for non-productive purposes such as household consumption, repayment of old debts, medical expenses, and coping with climatic or wildlife-related losses.. Consequently, co-operative credit often functioned as a means of stabilising household consumption and managing risks rather than promoting productive investment. The study concluded that Kerala’s co-operative credit system has expanded significantly over the past four decades and has played a vital role in supporting agricultural activities. However, its growth has been spatially uneven and institutionally driven. Investment-oriented credit was more unequally distributed than short-term crop loans, limiting development in weaker regions. At the macro level, co-operative credit supports agricultural intensification and structural transformation. At the micro level, its developmental impact is limited by risk-averse lending practices, ecological challenges, and diversion of funds. The study recommends increasing the share of long- term investment credit, strengthening deposit mobilisation and share capital, adopting district-specific revival strategies, aligning credit with agro-ecological conditions, and linking credit with technology adoption and advisory services. It also emphasises the need for flexible lending products, better monitoring of loan utilisation, and incentive- based repayment systems. Integrating credit with farm support services can improve productivity and repayment capacity. These measures can enhance the effectiveness of co-operative credit as a tool for sustainable and inclusive agricultural development in Kerala.