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Land as Collateral in India
Although land is regarded as an ideal collateral for both borrowers and lenders, it is not used as one in developing countries like India for a variety of reasons. This use of land as collateral for borrowings by Indian households is mapped using data from the All India Debt and Investment Survey of 2012–13. The extent and patterns of the use of land as collateral are documented, supplemented with insights from a field survey in select talukas of Maharashtra that examine borrower perceptions of such use.
The authors would like to thank the participants of the round table on Land and Access to Finance, organised by the Finance Research Group at the Indira Gandhi Institute of Development Research, and the anonymous referee for comments and suggestions. The qualitative evidence comes from a survey funded by the Omidyar Network as part of a project titled “Pilot Impact Assessment of the Government of India’s Digital India Land Records Modernization Programme.”
A long history of research on land titling emphasises the link between clear land titles and credit access. Several studies argue that clarifying land titles enables greater use of land as collateral and hence improves access to credit from formal institutions, especially where the enforcement of credit contracts is weak (de Soto 2000; Deininger 2003). Based on this premise, a number of countries have made efforts and implemented policies relating to land titles. Despite these longstanding arguments on the presumed positive impact of land titles and credit access, existing empirical evidence suggests a more complex relationship. In particular, studies show that several conditions need to be in place for land to serve as collateral and clear titles is just one of them; it alone is not sufficient to ensure credit access. Thus, while land titling is important to achieve broader economic gains, one should not expect titling to automatically improve credit access from formal institutions (Domeher and Abdulai 2012; Sanjak 2012).
This article is an invitation to examine this debate in the context of household debt in India. Currently, while there is a perception that a bulk of household debt in India is unsecured, there is not much data on the extent of the use of collateral, especially land. The sparse research that exists on this subject puts forth different estimates. At the same time, the broad discourse pivots on the idea that land titling is key to improving formal credit access (for example, Morris and Pandey 2009).1 The Digital India Land Records Modernization Programme (DILRMP) completed a decade in 2018, focused at streamlining title records. These efforts are taking place in a context where, despite the spread of formal institutions and better management of land records, informal debt still appears to dominate the landscape of household finance (NABARD 2018; Pradhan 2013).2
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