An Exploratory Study on Microenterprise Lending Practices in Odisha

Objectives: The study was to acquire updated perspectives on sources of credit for microenterprise in Odisha, India. The study also assesses the demand as well as supply side causes for the persisting inadequacy of credit and dependence of microenterprises on informal channels for their financial needs.

Methods/Statistical analysis: The primary survey was conducted in four districts of Odisha in four different contexts. The research design followed a simultaneous use of quantitative and qualitative research methods. A sample of 813 from these four locations was drawn for representing the different types of microenterprises. The choice of districts was purposive and within districts, the selection of rural/semi-urban and urban sample was also purposive so that the adequate number of rural were covered. The survey dwelt on both the demand and the supply side factors affecting credit flow.

Findings: The study finds that on the demand side, nearly 78% of surveyed micro-entrepreneurs expressed the need for finance for their microenterprises, with the average amount required being close to ₹90,815. The main purpose of the requirement was to procure raw material (including ‘saleable’ goods for trading enterprises). Surprisingly, only 28% of the surveyed households expressed the need for financing household expenditure for consumption (main purpose), education, health, housing, and social purposes, with the stated average need of ₹65,541. The study reveals that the formal sources accounted for around 60% in terms of both number of loans received and the amount financed.

Application/Improvements: The study points to gender gap in accessing formal credit. Future research and action oriented outputs should focus on studying the gender gap further with the aim of informing policy level changes that could address this.