Formal Credit, Corruption and the Informal Credit Market in Agriculture: a Theoretical Analysis

Gupta, Manash Ranjan; Chaudhuri, Sarbajit

doi:10.1111/1468-0335.00081

Cited by 54 publications

(37 citation statements)

References 15 publications

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“…Later on, several economists developed computable general equilibrium (CGE) models to analyze these interactions, all of them based on neoclassical economics assumptions (Bose 1998, Gupta and Chaudhuri 1997, Jain 1999. In these models, informal credit is restricted to exchange of money between usurers and farmers, usurers acting as intermediaries between banks and farmers who do not have access to formal credit resources.…”

Section: Mas and Analysis Of Rural Creditmentioning

confidence: 99%

Multi-agent simulations to explore rules for rural credit in a highland farming community of Northern Thailand

Barnaud

Bousquet

Trébuil

2008

Ecological Economics

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Multi-agent systems (MAS) open new modelling and analysis perspectives in ecological and social sciences. An original characteristic of the Companion Modelling (ComMod) approach adopted in this case study is the co-construction and use of a MAS model with and for local stakeholders such as farmers and local administrators. Alternating iteratively field and modelling activities, this approach facilitates collective learning among local stakeholders and between them and the researchers. Combining the use of MAS models with Role-Playing Games (RPG), the described experiment aimed to facilitate collective decision-making in a socially heterogeneous community of small farmers in mountainous northern Thailand about the local rules for the allocation of rural credit to allow a more equitable and extensive process of expansion of non-erosive perennial crops in a watershed prone to erosion. This paper presents the MAS model and the results of a series of simulations exploring the ecological, social and economic effects of various rules for formal and informal credit suggested by the villagers-participants. Six scenarios considered as pertinent to further explore the participants' suggestions were defined based on different combinations among the following three variables: (i) Duration for the reimbursement of loans, (ii) Mode of allocation of formal credit among three different types of farms, (iii) Configuration of networks of acquaintances for access to informal credit. Drawing on this case study, we first elaborate on the potential of bottom-up models such as MAS to analyze the functioning of agricultural systems, in particular farm differentiation and rural credit dynamics. We highlight the ability of MAS to deal with interactions between social and ecological dynamics and to take into account social interactions, in particular the concept of social capital which is a determining factor when dealing with sustainability issues. The second question addressed in this paper deals with the potential and limits of MAS models to support a bottom-up (or participatory) modelling approach. This experiment suggests that the usefulness of models relies much more on the modelling process than on the model itself, because a model is usually useless if it is misunderstood by its potential users, or if it does not respond to their current preoccupations. The intuitive representation of real systems provided by MAS and their high flexibility are the two underlined characteristics favouring their appropriation by local stakeholders.

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Section: Mas and Analysis Of Rural Creditmentioning

confidence: 99%

Multi-agent simulations to explore rules for rural credit in a highland farming community of Northern Thailand

Barnaud

Bousquet

Trébuil

2008

Ecological Economics

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“…Casual empiricism suggests that in the post globalization era the importance of formal credit has increased substantially in export oriented agricultural sector. The share of formal credit had gone up to over 50% from the year 1981-1982 [1]. Under the guidance of Reserve Bank of India, public sector banks had prepared Special Agricultural Credit Plans (SACP) in 1994-1995 to increase the flow of formal credit to agricultural sector.…”

Section: Introductionmentioning

confidence: 99%

“…Empirical studies are suggestive of the fact that private money lenders, friends, relatives, commission agents and traders are important agents in the informal credit market (for example, Sarap [3], Das, Senapati, John [2] among others). Gupta and Chaudhuri [1] in their paper develop the idea that farmers have access to both formal and informal credit.…”

Section: Introductionmentioning

confidence: 99%

“…Secondly, our paper differs from other papers in its treatment of the relationship between formal credit and informal credit. Gupta and Chaudhuri [1] states formal and informal credit in the agricultural sector can be either complementary or substitutes. In the present paper we treat formal and informal credit as substitutes for one another.…”

Section: Introductionmentioning

confidence: 99%

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Formal-Informal Credit Market Interlinkage and Development Policies: A General Equilibrium Analysis

Banerjee¹,

Nag²

2015

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Globalization has brought about significant changes in the organization of production of emerging market economies. One such change is an emergence of an advanced, export-oriented rural agricultural sector. This advanced sector not only uses land and labor but also uses formal credit for financing its production. This growing importance of formal credit in the agricultural sector motivates us to explore the implications of formal-informal credit market interlinkage using a three sector General Equilibrium trade theoretic structure. In the present paper, we would like to explore the implications of financial deregulation, an increase in amount of formal credit and agricultural trade liberalization. The focus of our examination has been on factor rewards, output composition and national income of a transitional economy. Multiple cross effects, factor intensity ranking and factor specificity are crucial in determining the results.

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“…Contributions like Chaudhuri and Gupta (1996), Gupta and Chaudhuri (1997), and Chaudhuri (1998Chaudhuri ( , 2001Chaudhuri ( , 2004 analyze interaction between the two credit markets in the presence of corruption in the loan delivery system in the formal credit market. On the other hand, works like Bose (1998), Hoff and Stiglitz (1996), Floro and Roy (1997), Jain (1999), Chaudhuri and Ghosh Dastidar (2011) etc.…”

Section: Introductionmentioning

confidence: 99%

International factor mobility, informal interest rate and capital market imperfection: A general equilibrium analysis

Chaudhuri

Gupta

2014

Economic Modelling

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This paper makes a pioneering attempt to provide a theory of determination of interest rate in the informal credit market in a small open economy in terms of a threesector general equilibrium model. There are two informal sectors which obtain production loans from a monopolistic moneylender and employ labour from the informal labour market. On the other hand, the formal sector employs labour at an institutionally fixed wage rate and takes loans from the competitive formal credit market. We show that an inflow of foreign capital and/or an emigration of labour raises (lowers) the informal (formal) interest rate while lowers the competitive wage rate in the informal labour market when the informal manufacturing sector is more capital-intensive vis-à-vis the agricultural informal sector. International factor mobility, therefore, increases the degrees of distortions in both the factor markets in this case.

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Formal Credit, Corruption and the Informal Credit Market in Agriculture: a Theoretical Analysis

Cited by 54 publications

References 15 publications

Multi-agent simulations to explore rules for rural credit in a highland farming community of Northern Thailand

Multi-agent simulations to explore rules for rural credit in a highland farming community of Northern Thailand

Formal-Informal Credit Market Interlinkage and Development Policies: A General Equilibrium Analysis

International factor mobility, informal interest rate and capital market imperfection: A general equilibrium analysis

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