Credit layering in informal financial markets

Mansuri, Ghazala

doi:10.1016/j.jdeveco.2006.12.001

Cited by 18 publications

(11 citation statements)

References 24 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…2863-2864. See Harriss (1983), Bouman and Houtman (1988), Graham et al (1988), Floro and Yotopoulos (1991), and Mansuri (2006) for additional evidence of informal lenders accessing the formal sector in India, Niger, Pakistan, Philippines, and Sri Lanka. See also Haney (1914), Gates (1977), Biggs (1993), Toby (1991), Teranishi (2005Teranishi ( , 2007, and Wang (2008) for historical support from Japan, Taiwan, and the United States.…”

Section: Introductionmentioning

confidence: 99%

Informal Finance: A Theory of Moneylenders

Madestam

2010

SSRN Journal

View full text Add to dashboard Cite

SummaryI study the coexistence of formal and informal finance in underdeveloped credit markets. While weak institutions constrain formal banks, shallow pockets hamper informal lenders. In such economies, informal finance has two effects. By increasing the investment return it decreases borrowers' relative payoff following default, inducing banks to lend more liberally (disciplinary effect). By channeling bank capital it reduces banks' agency costs from lending directly to borrowers, limiting banks' extension of borrower credit (rent-extraction effect). Among other things, the model shows that informal interest rates are higher, borrower welfare lower, and informal finance more prevalent when the rent-extraction effect prevails, consistent with stylized facts in poor societies. Keywords July 2010Abstract I study the coexistence of formal and informal finance in underdeveloped credit markets. Formal banks have access to unlimited funds but are unable to control the use of credit. Informal lenders can prevent non-diligent behavior but often lack the needed capital. The model implies that formal and informal credit can be either complements or substitutes. The model also explains why weak legal institutions raise the prevalence of informal finance in some markets and reduce it in others, why financial market segmentation persists, and why informal interest rates can be highly variable within the same sub economy.JEL classification: O12; O16; O17; D40.

show abstract

Section: Introductionmentioning

confidence: 99%

Informal Finance: A Theory of Moneylenders

Madestam

2010

SSRN Journal

View full text Add to dashboard Cite

show abstract

“…In this way, farmer is bound to deliver the crop to middleman on a price which is quite low from market price (Mansuri, 1998). Middleman policy to some extent also involves interest at some place and if fuel, fertilizer, or pesticides are taken from middleman, they are charged with inflated prices than market value (Khalid, 2015).…”

Section: Agriculture Sector In Pakistanmentioning

confidence: 99%

“…Middleman policy to some extent also involves interest at some place and if fuel, fertilizer, or pesticides are taken from middleman, they are charged with inflated prices than market value (Khalid, 2015). All these options lead towards the poverty of producer (farmer) and this poverty increases as every seasons pass (Mansuri, 1998).…”

Section: Agriculture Sector In Pakistanmentioning

confidence: 99%

Bay Salam: A Proposed Model for Shari’ah Compliant Agriculture Financing

Ehsan¹,

Shahzad²

2015

BER

View full text Add to dashboard Cite

show abstract

“…Teh (1991) The Philippines Banik (1993) Bangladesh Swain (1998) Orissa in India Mansuri (2007) Punjab and Sindh in Pakistan Shami (2012) Hafizabad in Pakistan Credit-labour Employer lender lends during lean periods in return for a committed labour supply during peak periods Bardhan and Rudra (1978) WB, Bihar, and eastern UP in India Bhende (1986) Andhra Pradesh in India Bell and Srinivasan (1989) Bihar in India Sarap (1991) Orissa in India Reddy (1992) Andhra Pradesh in India Bhaumik and Rahim (1999) WB in India Credit-output Lender is an output trader (commission agent) who offers a working capital loan during cultivation in exchange for an assured output supply at a predetermined price Bell and Srinivasan (1989) Punjab in India Gill (1996) Punjab in India Bell et al (1997) Punjab in India Sohi and Chahal (2004) Punjab in India Reddy (1992) Andhra Pradesh in India Subramanian and Qaim (2011) Maharashtra in India Manig (1990) Pakistan Kashuliza (1993) Iringa in Tanzania Credit-land Credit is available in exchange for a land mortgage where the lender cultivates the land until dues are settled Bhaumik and Rahim (1999) WB in India (Continued) 166 Debdatta Pal the terms dictated by the landlords. This exploitation constrains poorer peasants within a debt trap.…”

Section: Motivations Behind Interlinked Credit Transactionsmentioning

confidence: 99%

Linking Credit with other Markets: A Review of the Issues in Rural Economies

Pal

2014

Forum for Development Studies

View full text Add to dashboard Cite

This article uses the lens of information asymmetry and transaction costs to explore the problems of rural credit markets in less-developed countries. We show that in the absence of efficient markets in factor services, interlinked credit seems to provide a good solution to the typical problems of poor agrarian economies. These issues include seasonality, non-standard factor services, uncertain input supply, adverse price fluctuations, and the opportunistic behaviour of transacting agents. The article also postulates a theoretical model of interlinked credit with the output market as a direction of future research and makes few policy recommendations.

show abstract

Credit layering in informal financial markets

Cited by 18 publications

References 24 publications

Informal Finance: A Theory of Moneylenders

Informal Finance: A Theory of Moneylenders

Bay Salam: A Proposed Model for Shari’ah Compliant Agriculture Financing

Linking Credit with other Markets: A Review of the Issues in Rural Economies

Contact Info

Product

Resources

About