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

  • Sujata Visaria
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    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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    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. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-in-Differences Estimates?," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 249-275, February.
    2. Bardhan, Pranab & Udry, Christopher, 1999. "Development Microeconomics," OUP Catalogue, Oxford University Press, number 9780198773719.
    3. 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.
    4. Yuk-Shee Chan & Anjan V. Thakor, 2004. "Collateral and Competitive Equilibria with Moral Hazard and Private Information," Finance 0411019, EconWPA.
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