Transaction Costs in Borrowing Agricultural Credit by Farm Households across Rural-Urban Interface of Bengaluru

The study was undertaken in North of Bengaluru to analyze transaction cost involved in borrowing agricultural credit from formal and informal sources and to identify the factors influencing the borrowers’ transaction cost across rural-urban interface. The data was collected from randomly selected 50 farmers each from rural, peri-urban and urban transacts. The results revealed that the transaction cost in availing credit was more in formal sources in all the three gradients compared to informal sources. Among the formal sources, the total transaction cost incurred by farmers was highest in commercial banks followed by Regional Rural Banks (RRBs) and Co-operative banks in all the three gradients. In rural gradient total transaction cost incurred by farmers was highest in commercial banks (Rs. 5395.26) followed by Co-operative banks (Rs. 3112.33) and RRBs (Rs. 1811.20) and it was lowest in case of informal sources of credit (Rs. 1140.27). Rent seeking cost was the major cost in transaction cost followed by cost of documents and opportunity cost of time spent in all the gradients. Results of multiple regression analysis revealed that education, number of visits, total land holding and amount borrowed were the major factors significantly influencing the borrower’s transaction cost. From the study it was evident that transaction cost was high in formal sources, and this needs special attention by the government and the institutions like Registration and Revenue authorities to curb rent seeking behavior of officials involved which contribute towards higher transaction cost. Collateral security norms are hindering the marginal and small farmers in obtaining credit from formal sources and hence, there is a need to redesign these norms especially for small and marginal farmers.