Rural Credit Crisis in Tamil Nadu With Reference to Structural Causes, Financial Exclusion, and the Urgent Need to Reimagine Inclusive Banking - An Empirical Assessment

Abstract

This empirical study investigates Tamil Nadu's rural credit crisis, emphasizing its structural, social, and institutional causes. Despite extensive banking infrastructure and microfinance networks, a significant portion of rural households, especially small and marginal farmers, remain excluded from affordable formal credit due to land fragmentation, insecure tenancy, and stringent collateral norms. Social discrimination based on caste and gender further limits access, with marginalized groups facing higher rejection rates and smaller loan amounts. Dependence on informal sources like moneylenders and chit funds charging exorbitant interest rates exacerbates debt burdens and cycles of over-indebtedness. Procedural barriers, low financial literacy, and limited outreach hinder effective utilization of formal banking services, especially in remote areas.

 The economic impact includes reduced productivity, limited diversification, and increased poverty among rural communities. To address these issues, the study advocates for reimagining inclusive banking models leveraging digital technology, simplifying procedures, recognizing diverse collateral, and promoting social inclusion. Strengthening cooperative banks, expanding micro-credit schemes, and deploying community-based digital financial services are vital reforms. A comprehensive approach integrating institutional reforms, technological innovation, and targeted social measures can foster financial resilience, reduce reliance on exploitative informal credit, and promote sustainable rural development in Tamil Nadu. This reform-oriented strategy aims to bridge the gap between formal financial institutions and rural households, ensuring equitable access and fostering inclusive growth. This study examines urgent and relevant issues that are gaining prominence in our rapidly evolving and interconnected world, underscoring their importance within the present global landscape.