7. How Do Household and Spatial Factors Matter While Examining Inequality in Credit Availability? Evidence from an Emerging Economy

Using a multi-level modelling approach, this paper analyzes the decomposition of the sources of inequality in credit availability from both informal and formal sources in India for the second half of the year 2002 and 2012. On decomposing inequality of credit availability in India at three nested levels—household, region and state. It is observed that around 80–87% of the variance in informal credit results from the variance between households, around 4.2–5.4% and the remaining 8.9–15.1% stems from variance at the regional level and at the state level, respectively. Whereas for formal credit, 80–87% of the variance stems from the variance between households, around 5.6–7.1% from the regional level and the remaining 8.3–14.9% comes from variance at the state level. The paper analyzes the effect of various household, regional and state-level characteristics on credit availability from both formal and informal sources in India.