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

Abstract

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.

Social inequality and access to social capital in microfinance interventions

“…gender and caste in India) that might keep some individuals away from accessing group-based social capital in the form of SHGs. Some empirical studies with respect to Indian microfinance have discussed the effects of household assets (land holding and cattle possession) and networks with community leader in accessing the credit market in policy formulation (Pal and Laha, 2015), the role of consumption behavior and market linkage in formal versus informal credit access and the failure of formal credit institutions in reaching the low-income groups (Pal, 2012; Pal and Dutta, 2015). Yet, these empirical works fall short of analyzing access to microfinance groups that play a crucial role in access to banking institutions and facilities in long run.…”

Satellite big data analytics for ethical decision making in farmer’s insurance claim settlement: minimization of type-I and type-II errors

“…The ability to screen borrowers with a high degree of accuracy face bottlenecks due to information asymmetry and transaction costs in developing countries, which ultimately plays to the advantage of informal lenders who can then use the leverage to impose their own terms (e.g. high interest rates) (Pal 2015). The lack of a credit history and repayment record may force formal credit institutions to use indeterminate variables such as household expenditure, owned land and agricultural machinery which directly creates the possibility of wealthier households receiving credit, even though they may have little need for it (Foltz 2004).…”