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The Village Money Market Revealed: Financial Access and Credit Chain Links Between Formal and Informal Sectors

Author

Listed:
  • Parit Sripakdeevong

    (Department of Economics, Massachusetts Institute of Technology, Cambridge, Massachusetts, USA)

  • Robert M. Townsend

    (Department of Economics, Massachusetts Institute of Technology, Cambridge, Massachusetts, USA)

Abstract

An all-or-nothing view of financial access leading to overly simplistic policy recommendations has been largely overturned in the data. Heterogeneity and explicit obstacles to trade are key aspects that need to be incorporated into models when looking at intermediate outcomes in the data. Networks in particular can amplify or work against policy interventions and do so in different directions for different groups at the same time. Work on village money markets allows us to better understand how these networks function, and how and why they can change with policy interventions. Nevertheless, though village economies are as sophisticated as those in New York financial markets, both suffer from familiar problems. One is reliance on relationships that segment markets and limit more universal benefits. A second problem is market contagion. Policy interventions facilitating financial access and the functioning of markets need to be guided by this stricter yet more realistic view.

Suggested Citation

  • Parit Sripakdeevong & Robert M. Townsend, 2022. "The Village Money Market Revealed: Financial Access and Credit Chain Links Between Formal and Informal Sectors," Annual Review of Financial Economics, Annual Reviews, vol. 14(1), pages 1-20, November.
    • Handle: RePEc:anr:refeco:v:14:y:2022:p:1-20
    DOI: 10.1146/annurev-financial-012820-034126
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    More about this item

    Keywords

    credit; credit chains; financial access; formal and informal sectors; insurance; networks; village money market;
    All these keywords.

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D60 - Microeconomics - - Welfare Economics - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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