Going Digital: Computerized Land Registration and Credit Access in India

1. Going Digital: Computerized Land Registration and Credit Access in India Klaus Deininger and Aparajita Goyal World Bank

2. Main Question • Do improvements in information increase lending activities undertaken by banks? • Computerization of land registration undertaken by the Andhra Pradesh government: • Leads to a reduction in transaction costs incurred by banks • Makes information easily accessible to lenders

3. Background • Registration and Stamps Department one of the oldest departments of state government • Registers documents that endorse various types of transactions citizens undertake: sale, purchase, mortgages, leases of property • Wills, divorce, adoption, power of attorney • Market valuation of immovable property • Issue of encumbrance certificates (states all transactions carried out in respect of a particular immovable property for a given time period) • 387 Sub registry offices (SROs), lowest administrative units, in AP providing these services

4. Background • Before computerization, all transactions manually recorded and stored • Process of registration and property valuation idiosyncratic • Bribes, non-standard registration fees • After computerization: • Property valuation carried out by well-specified algorithm • Standardization of registration fees, removes sub-registrar’s discretion • All transactions from the year 1983 digitized. • Key documents such as encumbrance certificates, market valuation and deed details available publicly. • Allows banks to easily access information on market valuation, land transactions to validate borrowers claims.

5. Objective • Land is an ideal collateral can be used for this easily if there is a low cost way to unambiguously identify land ownership, normally through formal recording • Vast literature on positive links between secure property rights and long term investments on land, labor supply participation, women’s empowerment (Besley 1995, Field 2007, Panda and Agarwal 2005, Goldstein and Udry 2006) • However, our study different: • Not a titling program, but reduction in transaction costs • Effect of a transparent process of registration on credit and land transactions • Reduction in registration fees on the volume of transactions registered (whether demand for registration is price elastic).

6. Data • Annual data on the number and types of transactions registered per SRO both before and after computerization (1997-2007) (source: Registration and Stamps Department, Government of AP) • Quarterly Data on credit disbursed by all commercial banks in each taluk of AP from 1997-2007 (source: Reserve Bank of India) • Dates of Computerization of 387 SROs (source: Registration and Stamps Department, Government of AP) • Multiple taluks within each SRO. Village matching to determine which SRO each taluk belongs to. (source: Census 2001)

7. Summary Statistics Timing of land registry computerization in Andhra Pradesh

8. Summary Statistics Evolution of retail credit and transaction volume in Andhra Pradesh, 1997-2007

9. Summary Statistics

10. Empirical Strategy • Estimate: • γi : Taluk fixed effects control for time invariant taluk characteristics • θt : Quarter*Year fixed effects • Compit: Indicator variable for whether taluk i computerized at quarter t

11. Empirical Strategy • Estimate: • γi : SRO fixed effects control for time invariant SRO characteristics • θt : Year fixed effects • Compit: Indicator variable for whether SRO i computerized at year t

12. Stamp Duty Reduction 14% to 9.5% in 2005 for sales, No change in mortgages 3%

13. Conclusions • Study demonstrates that improved access to land information can significantly increase credit access. • Marked difference of results across space and transaction types, Registration is very price elastic • Results suggest that reforms are likely to lead to the desired results only if they provide affected parties with tangible benefits the magnitude of which exceeds the cost of formal registration. • Similar study for other states, with different approaches than that of AP, could provide valuable insights on the magnitude and distribution of effects.