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Legal Reform and Loan Repayment: The Microeconomic Impact of Debt Recovery Tribunals in India

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  • Sujata Visaria
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    Abstract

    In 1993, the Indian government introduced debt recovery tribunals to speed up the resolution of debt recovery claims larger than a threshold. This paper exploits the staggered introduction of tribunals across states and the link between overdues and claim size to implement a differences-in-differences strategy on project loan data. It finds that the tribunals reduced delinquency for the average loan by 28 percent. They also lowered the interest rates charged on larger loans, holding constant borrower quality. This suggests that the speedier processing of debt recovery suits can lower the cost of credit. (JEL G21, K41, O16, O17)

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    Bibliographic Info

    Article provided by American Economic Association in its journal American Economic Journal: Applied Economics.

    Volume (Year): 1 (2009)
    Issue (Month): 3 (July)
    Pages: 59-81

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    Handle: RePEc:aea:aejapp:v:1:y:2009:i:3:p:59-81

    Note: DOI: 10.1257/app.1.3.59
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    1. Ana Carla A. Costa & João M. P. De Mello, 2008. "Judicial Risk and Credit Market Performance: Micro Evidence from Brazilian Payroll Loans," NBER Chapters, in: Financial Markets Volatility and Performance in Emerging Markets, pages 155-184 National Bureau of Economic Research, Inc.
    2. Chan, Yuk-Shee & Thakor, Anjan V, 1987. " Collateral and Competitive Equilibria with Moral Hazard and Private Information," Journal of Finance, American Finance Association, vol. 42(2), pages 345-63, June.
    3. Bardhan, Pranab & Udry, Christopher, 1999. "Development Microeconomics," OUP Catalogue, Oxford University Press, number 9780198773719, September.
    4. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2002. "How Much Should We Trust Differences-in-Differences Estimates?," NBER Working Papers 8841, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Madestam, Andreas, 2014. "Informal finance: A theory of moneylenders," Journal of Development Economics, Elsevier, vol. 107(C), pages 157-174.
    2. Leora Klapper, 2011. "Saving Viable Businesses : The Effect of Insolvency Reform," World Bank Other Operational Studies 11056, The World Bank.
    3. Ulf von Lilienfeld-Toal & Dilip Mookherjee & Sujata Visaria, 2009. "The Distributive impact of reforms in credit enforcement: Evidence from Indian debt recovery tribunals," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 09-03, Indian Statistical Institute, New Delhi, India.
    4. Ileana Ashrafzadeh - Nișulescu & Marușa Beca, 2013. "The Corporate Insolvency’s Evolution in the EU and India in the Period 2007-2012 Classification-JEL:," Journal of Knowledge Management, Economics and Information Technology, ScientificPapers.org, vol. 3(6), pages 15, December.
    5. Allen, Franklin & Chakrabarti, Rajesh & De, Sankar & Qian, Jun “QJ” & Qian, Meijun, 2012. "Financing firms in India," Journal of Financial Intermediation, Elsevier, vol. 21(3), pages 409-445.
    6. Badev, Anton & Beck, Thorsten & Vado, Ligia & Walley, Simon, 2014. "Housing finance across countries : new data and analysis," Policy Research Working Paper Series 6756, The World Bank.
    7. Wenli Li & Ishani Tewari & Michelle J. White, 2014. "Using Bankruptcy to Reduce Foreclosures: Does Strip-down of Mortgages Affect the Supply of Mortgage Credit?," NBER Working Papers 19952, National Bureau of Economic Research, Inc.

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