Impact of Co-operative Agricultural Credit on Borrower Farmers in Kerala, India

Abstract

Introduction: Access to institutional credit is essential for improving agricultural productivity, reducing financial vulnerability and enabling timely investment in farm operations. Co-operative credit institutions play a key role in this process, particularly for small and marginal farmers who face limited access to formal banking channels. Aim: This study examined the impact of co-operative agricultural credit on borrower households and assessed the extent of loan utilisation in Kerala. Place and Duration of Study: A cross-sectional analytical design was adopted, and primary data was collected from 160 co-operative loan borrower farmers from four representative districts of Kerala namely Pathanamthitta, Alappuzha, Palakkad and Malappuram during the 2024-25 agricultural year. Methodology: Two blocks were selected from each district based on the presence and activity level of co-operative lending institutions. From each selected block, 20 borrower households were chosen through simple random sampling, resulting in a final sample size of 160 respondents. Primary data was collected using a structured interview schedule that captured socio-economic characteristics, landholding, cropping pattern, loan amount, loan utilisation behaviour and income details. Two Ordinary Least Squares (OLS) log-linear regression models were employed for analysing the data. The first model examined the factors influencing the amount of co-operative credit borrowed, using demographic, farm-level and financial variables as predictors. Second model examined the factors affecting farm income and loan utilization pattern was analysed using percentage analysis. Results: Findings showed variation in loan utilisation across respondents, with a considerable share of loans diverted towards non-agricultural purposes. Results from an Ordinary Least Squares log-linear regression model indicated that the loan size was influenced mainly by collateral availability and outstanding loans. A second model examining determinants of borrowing showed that the amount of credit borrowed did not have a significant effect on farm income, while factors such as cultivated area, age and production-related expenses were more strongly associated with income levels. Conclusion: The findings suggest that although co-operative credit remains an important financial source for rural households, its effect on income enhancement is limited due to diversion. Strengthening utilisation monitoring and promoting investment-oriented lending may improve the developmental effectiveness of co-operative credit in Kerala.