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Vertical Links between Formal and Informal Financial Institutions

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  • Floro, Maria Sagrario
  • Ray, Debraj

Abstract

The paper investigates vertical linkages between formal and informal financial institutions. Specifically, it studies a policy that expands formal credit to informal lenders, in the hope that this will improve loan terms for borrowers who are shut out of the formal sector. Special attention is paid to the Philippines. It is argued that the effects of stronger vertical links depend on the form of tender competition. In particular, if the relationship between lenders is one of strategic cooperation (sustained by threats of reprisal in a repeated setting), an expansion of formal credit may worsen the terms faced by informal borrowers. Copyright 1997 by Blackwell Publishing Ltd

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Development Economics.

Volume (Year): 1 (1997)
Issue (Month): 1 (February)
Pages: 34-56

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Handle: RePEc:bla:rdevec:v:1:y:1997:i:1:p:34-56

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=1363-6669

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Citations

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Cited by:
  1. Andreas Madestam, 2009. "Informal Finance: A Theory of Moneylenders," Working Papers 2009.69, Fondazione Eni Enrico Mattei.
  2. Chaudhuri, Sarbajit & Ghosh Dastidar, Krishnendu, 2009. "Corruption in a Model of Vertical Linkage between Formal and Informal Credit Sources and Credit Subsidy Policy," MPRA Paper 18006, University Library of Munich, Germany.
  3. Sarbajit Chaudhuri, 2000. "Interactions Between Two Informal Sector Lenders and Interest Rate Determination in The Informal Credit Market: A Theoretical Analysis," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 35(2), pages 155-174, July.
  4. Mansuri, Ghazala, 2007. "Credit layering in informal financial markets," Journal of Development Economics, Elsevier, vol. 84(2), pages 715-730, November.
  5. Basab Dasgupta, 2005. "Liquidity Constraint and Child Labor In India: Is Market Really Incapable Of Eradicating It From Wage-Labor Households?," Working papers 2005-37, University of Connecticut, Department of Economics.
  6. Chaudhuri, Sarbajit & Gupta, Manash Ranjan, 2011. "International factor mobility, informal interest rate and capital market imperfection: a general equilibrium analysis," MPRA Paper 32682, University Library of Munich, Germany.
  7. basab dasgupta, 2005. "Capital Accumulation in the Presence of Informal Credit Contract: Does Incentive Mechanism Work Better than Credit Rationing Under Asymmetric Information?," Computing in Economics and Finance 2005 366, Society for Computational Economics.
  8. Batini, Nicoletta & Kim, Young-Bae & Levine, Paul & Lotti, Emanuela, 2011. "Informal Labour and Credit Markets: A Survey," Working Papers 11/94, National Institute of Public Finance and Policy.
  9. Giné, Xavier, 2011. "Access to capital in rural Thailand: An estimated model of formal vs. informal credit," Journal of Development Economics, Elsevier, vol. 96(1), pages 16-29, September.
  10. Jain, Sanjay & Mansuri, Ghazala, 2003. "A little at a time: the use of regularly scheduled repayments in microfinance programs," Journal of Development Economics, Elsevier, vol. 72(1), pages 253-279, October.
  11. Mallick, Debdulal, 2012. "Microfinance and Moneylender Interest Rate: Evidence from Bangladesh," World Development, Elsevier, vol. 40(6), pages 1181-1189.
  12. Sarbajit Chaudhuri, 2005. "Interaction Of Formal And Informal Credit Markets In Backward," Game Theory and Information 0511001, EconWPA.
  13. Sundaram-Stukel, Reka, 2003. "Mobility in Rural Credit Markets: A Honduran Case Study," 2003 Annual meeting, July 27-30, Montreal, Canada 22081, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  14. Jain, Sanjay, 1999. "Symbiosis vs. crowding-out: the interaction of formal and informal credit markets in developing countries," Journal of Development Economics, Elsevier, vol. 59(2), pages 419-444, August.
  15. Park, Albert & Brandt, Loren & Giles, John, 2003. "Competition under credit rationing: theory and evidence from rural China," Journal of Development Economics, Elsevier, vol. 71(2), pages 463-495, August.
  16. Andersen, Thomas Barnebeck & Malchow-Moller, Nikolaj, 2006. "Strategic interaction in undeveloped credit markets," Journal of Development Economics, Elsevier, vol. 80(2), pages 275-298, August.

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