Home >News >India >Why Indians don’t use land as collateral
Land, because of its fixed and immobile nature and the ease at which it can be transferred to the lender in cases of default, is considered ideal collateral. (Mint)
Land, because of its fixed and immobile nature and the ease at which it can be transferred to the lender in cases of default, is considered ideal collateral. (Mint)

Why Indians don’t use land as collateral

In the Indian context, the lack of land rights is only a minor barrier towards land being used as collateral, suggests new research

Well-defined land rights are considered fundamental to growth because they can improve access to credit by allowing land to be used as collateral for loans. Yet, in the Indian context, land titling rights on their own will not be enough to improve access to credit, suggests new research.

A new Economic and Political Weekly research authored by Sudha Narayanan and Judhajit Chakraborty shows that land is hardly used as collateral in India. Based on data from the 2012-13 All India Debt and Investment survey conducted by the National Sample Survey Organization, they show that only 2.9% of total loans in rural India and 4.5% in urban areas were secured with land as collateral.

Land, because of its fixed and immobile nature and the ease at which it can be transferred to the lender in cases of default, is considered ideal collateral. Thus, in theory, better land rights and improved land titling should catalyze greater access to credit among land-owners.

However, Indian households (58.1% in urban and 61.8% in rural areas) predominantly depend on unsecured loans for credit access. And, most of these loans are availed from non-institutional sources such as money lenders. Even when collateral used, gold and jewellery are used more often than land for credit access

Based on observations from another field survey conducted in Palghar and Mulshi taluks of Maharashtra, the authors suggest that several socio-economic factors act as barriers for using land as collateral. In rural areas, land is considered to be a high-quality asset with significant cultural value and is mostly used as collateral only as a last resort. Other reasons include poor maintenance of land records, multiple landowners for the same land and the tedious documentation work needed to use land as collateral.

Also Read: Land as Collateral in India

Snap Fact features new and interesting reads from the world of research.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Click here to read the Mint ePaperMint is now on Telegram. Join Mint channel in your Telegram and stay updated with the latest business news.

Close
x
×
My Reads Redeem a Gift Card Logout