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Information Asymmetry and Trust: A Framework for Studying Micro-Finance in India


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  • Sriram M S


The work in the area of microfinance has concentrated on the issue of transaction costs in delivering the financial services to the poor. However, the mechanisms of reducing transaction costs have been mostly in the area of building trusts within local communities and using trust as an effective surrogate for sorting the twin problems of inadequate information and high cost of transactions. The paper presents a theoretical framework to study the field of microfinance from this point of view. There has been significant literature both in Economics as well as in Behavioural Sciences in examining the role of trust in organisational settings. This paper postulates that the element could be extended to networks like self-help groups. Eventually, it tries to identify some thresholds where the concept of trust and social capital can be used as a surrogate to reduce transaction-documentation costs and when the costs become indifferent to the underlying trust in exchanges.

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Paper provided by Indian Institute of Management Ahmedabad, Research and Publication Department in its series IIMA Working Papers with number WP2002-09-02.

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Handle: RePEc:iim:iimawp:wp00032

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Cited by:
  1. Irene Akuamoah Boateng & Albert Agyei, 2013. "Microfinance in Ghana: Development, Success Factors and Challenges," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 3(4), pages 153-160, October.
  2. Koen Rossel-Cambier, 2011. "Is Combined Microfinance an Instrument to enhance Sustainable Pro-Poor Public Policy Outcomes?," Working Papers CEB 11-013, ULB -- Universite Libre de Bruxelles.


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