KOCHI: Nearly one-third of Kerala’s population is indebted, almost double the national average, according to a Union government survey. However, experts point out that this isn’t necessarily bad, only a sign that the state is financially inclusive and that citizens have access to organised credit.
According to the National Sample Survey’s 79th round Comprehensive Annual Modular Survey (CAMS) 2022-23, an individual is indebted if they have taken a loan of Rs 500 or more, with an outstanding balance. Kerala ranks fifth among the states in terms of the number of borrowers, at 33,859 individuals per lakh of population. The national average is 18,322.
“Keralites have excellent access to credit through financial institutions, with nearly 100% of households holding a bank account,” says Aswathi Rebecca Asok, a PhD scholar in economics with the University of Portsmouth, England, who is researching debt dynamics among rural households in Kerala.
“Improved accessibility to credit is actually good and a sign of a progressive society. It’s largely due to the good network of cooperative credit institutions and Kudumbashree,” Aswathi told TNIE.
According to the survey, men significantly outnumber women in borrowing nationally — 24,214 male borrowers per lakh, compared to 12,275 female borrowers.
The survey was conducted between July 2022 and June 2023 and presents the number of borrowers per 100,000 persons (18 years and above) indebted to institutional or non-institutional agencies.
Interestingly, the southern states have a high debt rates with Andhra Pradesh topping the list with 60,092 individuals per lakh having some sort of debt that is outstanding.
Productive debt
According to the report, Kerala is also ahead in online banking adoption with over 53.9% of individuals aged 15 and above able to conduct online banking transactions. The national average is 37.8%.
“Our research shows that most Keralites take debt to build homes and improve their lives, which is a productive investment in human capital, even if it’s technically counts as consumption,” stresses Aswathi.
A study by the Centre for Socio-economic and Environmental Studies says that despite the high average monthly income-expenditure surplus among rural households, the proportion of households indebted in rural Kerala is quite high.
The study points out that during the last 20 years, indebtedness in rural Kerala has grown at a higher rate.
Reducing inequality
Moreover, a substantial body of research emphasises the crucial role of credit accessibility in developing economies in enhancing the living standards of poor households and alleviating poverty. Studies suggest that finance can empower the poor to catch up with the rest of the economy by reducing economic inequality.
This thinking is epitomised by the United Nations’ International Year of Microcredit 2005, which championed “building inclusive financial systems that work for the poor” as its guiding principle.
Aswathi, however, raises concerns about households getting trapped in debt. She warns about private microfinance institutions targeting marginalised women with high-interest loans, potentially debilitating households and pushing them into inescapable debt traps.
Inclusion vs debt
Further emphasising the point, an IIM Kozhikode working paper ‘Is Rural Household Debt Sustainable in a Financially Included Region? Evidence from Three Districts of Kerala (2021)’ found that though a high level of financial inclusion is considered desirable, unusually high levels of indebtedness in the rural areas can be quite alarming. The study added that while agricultural households are observed to mostly borrow for productive purposes like crop cultivation, investment in farm equipment, etc., nonagricultural households appear to be following a trend of higher spending on housing that is considered non-productive.
BRANCHING OUT
No. of bank branches in Kerala
Segment Number
PRIVATE SECTOR COMMERCIAL BANKS -2,685
SMALL-FINANCE BANKS -331
CO-OPERATIVE BANKS -979
PUBLIC-SECTOR COMMERCIAL BANKS -3,322
RRB - KERALA GRAMIN BANK -634
Total -7,951
* As of June 2024
Source: State Level Bankers’ Committee
KEEPING TABS
The survey presented the number of borrowers per 1,00,000 persons (18 years and above) indebted to institutional or non-institutional agencies
18,322 | National average
24,214 | Male average
12,275 | Female average
How individual states fared?
Top five
Andhra Pradesh - 60,092
Telangana - 42,407
Tamil Nadu - 35,703
Karnataka - 35,480
Kerala - 33,859
Bottom five
Himachal Pradesh - 7,268
Sikkim - 6,066
Arunachal Pradesh - 4,544
Meghalaya - 3,092
Goa - 2,317
Percentage of persons with account with bank/financial institution/mobile money service provider
India - 94.6
Kerala - 95.2
Source: Comprehensive Annual Modular Survey, 2022-23, NSS 79th Round