ABSTRACT
The Central and State governments have invested heavily in credit cooperatives throughout India. Many options have been tried and debated, including small and accessible credit societies versus larger, more remote, but professionally managed organizations. This chapter documents the pitfalls of the latter approach, in contrast with the small-scale, informal credit associations, called chit funds, which function well without any subsidies or controls from outside.
Development planners have persistently failed to investigate villagers’ patterns of informal cooperation and what they imply for organizing official cooperatives more effectively. This chapter describes several patterns of informal cooperation, demonstrating how their small scale, selective membership, participatory decision-making, and local autonomy contribute to their ability to mobilize resources.
In contrast, the same villagers use an official cooperative purely as a means of obtaining credit without paying for it. This cooperative, serving 32 villages, is run by a secretary appointed and supervised by the government; and it is corrupt and moribund. Large farmers know they can avoid repayment, and without repayments, the cooperative cannot issue fresh loans. Thus the co-op, unlike the informal chit funds, does not serve as an effective mechanism for extending credit or mobilizing savings. The evils of “blue-print” planning and excessive government interference are manifest here.
