Skip to content Skip to navigation

Looking at rural debt through the eyes of India's farmers

March 8, 2017
A farmer walks along his paddy fields as women immerse seedlings in the background

Without insurance, farmers often rely on loans when a drought wipes out their crops. But credit access is a poor risk management strategy.

Photography by: Emily Miller

Twelve women stand in a row, ankle-deep in an irrigated field, submerging rice seedlings as quickly as they can. The work is meticulous. Paddy fields stretch for miles, broken up by palm trees and mango groves. Monsoons are coming soon, the farmers say. And hopes are high the rains will mean much better harvests than the droughts of the last two years.

I’m looking on from the side of a road in rural India in 100 degree heat — a senior research assistant 9,000 miles from my office at the Stanford Center for International Development — trying to find answers to seemingly intractable questions: Despite this promising expanse of newly planted fields, why are so many farmers trapped in debt? And what can be done about it?

A steep price for convenience

One of the defining characteristics of agriculture is the seasonality of income. Farmers face most of their costs at the beginning of the season. That’s when they buy seeds and fertilizer, hire field hands, and prepare fields for cultivation. But they won't reap the fruits of their labor until harvest, at least a few months away.

There are different ways farmers can bridge this gap — saving income from the past harvest, borrowing from a bank, or turning to informal moneylenders that offer fast cash.

Research has shown that farmers typically take loans from banks at the beginning of the season but then rely on informal moneylenders for cash needed in the months between planting and harvest. Moneylenders are attractive options as farmers can use their word as their bond and get cash quickly. But interest rates often above 50 percent mean farmers pay a steep price for this convenience.

Banks have tried to meet this need for flexible cash and credit with the Kisan Credit Card (KCC). The accounts offer short-term credit on which agricultural startup costs like seeds and fertilizer can be bought. Credit limits are determined by a farmer's land holdings and income.

KCC attempts to capture the flexibility and convenience which makes moneylenders so attractive, but it has not succeeded in bolstering farmers' wealth and productivity. In central India, there are reports of KCC loans being used to repay farmer's other higher interest rate loans and thus maintaining cycles of indebtedness. In much of South India, banks have stopped promoting KCC altogether.

Despite the problems with KCC, it is still an open question what, if anything, banks can do to reduce the costly reliance on moneylenders and help farmers meet their needs.

Delving into the data

In an air-conditioned office space at the Institute for Financial Management and Research in urban Chennai, I’m parsing through India's national survey statistics to understand the current spending practices of farmers.

Yet I quickly hit a critical problem of disparate data sets.

In one data set, I can see what farmers are planting as well as how much they're earning and spending on crops and livestock. In Tamil Nadu, the state where the office is located, the majority of farmers cultivate rice. About half of those who plant crops also sell milk — since milk production doesn't depend on the weather, it’s a reliable source of income.

A separate data set shows how much farmers borrow and where they get the money from — banks, moneylenders, relatives, or other sources.

But here’s the problem: A farmer will receive one ID number in the survey on what he’s planting and a different ID number in the survey on what he’s borrowing. And there’s no way to tell which ID numbers correspond to the same person and match up the data.

The fact that crop data and loan data can’t be merged is a significant hindrance to research that could help alleviate rural poverty. As research on rural indebtedness requires an understanding of both agricultural and borrowing activity, India’s National Sample Survey Office would do well to change the ID methodology. In the meantime, researchers may have to carry out their own data collection.

Still, data is always just part of the puzzle. Even the best designed survey questionnaire can’t adequately capture the intricacies of human lives.

Stories from the field

Seven hours outside of Chennai, my translator, fellow researchers, and I watch the countryside unfurl as the bus barrels along. From the seats around us, we feel the eyes of curious adults and schoolchildren alike. Tamil music blares from the bus radio. A cacophony of car horns accompanies.


Emily Miller talks with a paddy farmer about the challenges he faces.

Photography by: Hailey Kwon

Standing among paddy and sugarcane fields, we start talking with farmers and hear stories of why loans were taken in the first place. Stories of crop damage by monkeys who got to the mangoes first. Stories of officials denying droughts and crop loss. Stories of botched paperwork at the agricultural co-op.

And we saw the difficulty of getting the real story.

Farmers would stand in front of miles of fields and report unrealistically meager crop income, perhaps in the hopes of receiving some sort of government benefit. Others would double-claim income sources that actually belonged to their neighbors, possibly out of pride.

Fighting an uphill battle without insurance

One of the most salient themes was the failure of insurance to help farmers manage risk. Sugarcane is the only crop for which loans are bundled with insurance. Raw sugarcane is sold directly to sugar mills, and the insurance premium is automatically deducted from the farmer's profit. Farmers' stories suggested this insurance only protects against fire, however, and not the more common problem of drought.

Some farmers bought rainfall insurance. But after not receiving payouts for a few years in a row, they deemed it futile and stopped purchasing it.

Another farmer submitted claims with photographic evidence of crop loss caused by poor seeds and insect damage, but still didn't receive a payout.

Farmers' problems are varied and a properly functioning insurance market certainly won't fix all of them. Even with insurance, farmers will still have to cover their expenses between planting and harvest using savings, loans, or other sources of income.

But the pervasiveness of bad experiences with insurance shows the failure of a key risk management strategy for farmers. Rainfall insurance in particular is an important way for farmers to manage situations outside their control. Two-thirds of paddy farmers cultivate only one crop. Monsoon failure can be devastating.

Without insurance, farmers often rely on loans to stand in for lost crop income. But credit access is a poor risk management strategy.

If droughts wipe out crops and with it the income farmers expected to use to repay their loans from a few months prior, farmers will either rack up nonpayment fees and accumulated interest, or take out a new loan to repay an old one. Years of repeated drought can quickly exhaust already meager savings.

Such stories provide a word of caution for banks that are looking to design new ways to lend to farmers. Based on the popularity of moneylenders, it may appear that farmers are seeking fast cash. But farmers don’t just need another loan, they need protections when their crops fail.

One of the most illuminating things I asked farmers was a short, open-ended question: “What are your biggest challenges?” I’ve been told many times of the importance of qualitative work. But as a data lover, I had to experience this truth for myself. Asking farmers this simple question opened up a space for life's complexity to enter and inform the research.