India has nearly 90 million farm households. More than 80 percent of these farmers operate on a small or marginal scale, farming less than two hectares of land. They also usually have one or two buffaloes or cows, reared for milk and dung. Most of these small and marginal farmers fall below the poverty line. To reduce overall poverty in India, it is important to enhance the incomes of small and marginal farmers. One way to do that is to provide credit so they can get access to yield-enhancing inputs like seed, fertilizer, and cattle feed, as well as acquire irrigation pumps and crossbred cattle. But these kinds of investments alone will not raise farmers’ incomes. Agricultural and livestock development services are also crucial to give farmers knowledge of improved practices and strengthen their links to markets.
BASIX is an Indian livelihood promotion institution working with more than a million poor households. Its mission is to promote sustainable livelihoods for a large number of rural poor people and women. When it started in 1996, BASIX’s primary focus was delivering microcredit to its customers. In 2001, however, BASIX asked the Indian Market Research Bureau to carry out an impact assessment, and the results were rather disappointing. Only 52 percent of the customers, who had received at least three rounds of microcredit from BASIX, showed a significant increase in their income (compared with a control group); 25 percent reported no change in income level; and 23 percent reported a decline in their income level. BASIX then carried out a detailed study of those who had experienced no increase or a decline in income and found that the reasons for these results could be grouped into three factors:
- unmanaged risk;
- low productivity; and
- unfavorable terms in input and output market transactions.
This brief is one of series on innovations in rural and agriculture finance.