IDEAS home Printed from https://ideas.repec.org/a/eee/deveco/v96y2011i1p16-29.html
   My bibliography  Save this article

Access to capital in rural Thailand: An estimated model of formal vs. informal credit

Author

Listed:
  • Giné, Xavier

Abstract

This paper analyzes the mechanism underlying access to credit, focusing on two important aspects of rural credit markets. First, moneylenders and other informal lenders coexist with formal lending institutions such as government or commercial banks, and, more recently, micro-lending institutions. Second, potential borrowers presumably face sizable transaction costs in obtaining external credit. We develop and estimate a model based on limited enforcement and transaction costs that provides a unified view of these facts. Based on data from Thailand, the results show that the limited ability of banks to enforce contracts, more than transaction costs, is crucial in understanding the observed diversity of lenders.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:deveco:v:96:y:2011:i:1:p:16-29
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304387810000726
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Mansuri, Ghazala, 2007. "Credit layering in informal financial markets," Journal of Development Economics, Elsevier, pages 715-730.
    2. Keane, Michael P., 2010. "Structural vs. atheoretic approaches to econometrics," Journal of Econometrics, Elsevier, vol. 156(1), pages 3-20, May.
    3. Gine, Xavier & Townsend, Robert M., 2004. "Evaluation of financial liberalization: a general equilibrium model with constrained occupation choice," Journal of Development Economics, Elsevier, pages 269-307.
    4. Anna L. Paulson & Robert M. Townsend & Alexander Karaivanov, 2006. "Distinguishing Limited Liability from Moral Hazard in a Model of Entrepreneurship," Journal of Political Economy, University of Chicago Press, vol. 114(1), pages 100-144, February.
    5. Enrica Detragiache & Paolo Garella & Luigi Guiso, 2000. "Multiple versus Single Banking Relationships: Theory and Evidence," Journal of Finance, American Finance Association, vol. 55(3), pages 1133-1161, June.
    6. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "The Role of Social Capital in Financial Development," American Economic Review, American Economic Association, vol. 94(3), pages 526-556, June.
    7. Zeller, Manfred & Sharma, Manohar, 1998. "Rural finance and poverty alleviation," Food policy reports 8, International Food Policy Research Institute (IFPRI).
    8. Jain, Sanjay & Mansuri, Ghazala, 2003. "A little at a time: the use of regularly scheduled repayments in microfinance programs," Journal of Development Economics, Elsevier, pages 253-279.
    9. Greenwood, Jeremy & Jovanovic, Boyan, 1990. "Financial Development, Growth, and the Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1076-1107, October.
    10. Bizer, David S & DeMarzo, Peter M, 1992. "Sequential Banking," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 41-61, February.
    11. Besley, Timothy, 1994. "How Do Market Failures Justify Interventions in Rural Credit Markets?," World Bank Research Observer, World Bank Group, pages 27-47.
    12. Petersen, Mitchell A & Rajan, Raghuram G, 1997. "Trade Credit: Theories and Evidence," Review of Financial Studies, Society for Financial Studies, vol. 10(3), pages 661-691.
    13. Parikshit Ghosh & Debraj Ray, 2016. "Information and Enforcement in Informal Credit Markets," Economica, London School of Economics and Political Science, vol. 83(329), pages 59-90, January.
    14. Hoff, Karla & Stiglitz, Joseph E., 1998. "Moneylenders and bankers: price-increasing subsidies in a monopolistically competitive market," Journal of Development Economics, Elsevier, pages 485-518.
    15. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-827, August.
    16. Jain, Sanjay, 1999. "Symbiosis vs. crowding-out: the interaction of formal and informal credit markets in developing countries," Journal of Development Economics, Elsevier, pages 419-444.
    17. Paul Huck & Sherrie L. W. Rhine & Philip Bond & Robert M. Townsend, 1999. "Small business finance in two Chicago minority neighborhoods," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 46-62.
    18. Hoff, Karla & Stiglitz, Joseph E, 1990. "Imperfect Information and Rural Credit Markets--Puzzles and Policy Perspectives," World Bank Economic Review, World Bank Group, vol. 4(3), pages 235-250, September.
    19. Ongena, S. & Smith, D.C., 2000. "Bank relationships : A review," Other publications TiSEM 993b88a5-9a0f-42de-9cec-6, Tilburg University, School of Economics and Management.
    20. Floro, Maria Sagrario & Ray, Debraj, 1997. "Vertical Links between Formal and Informal Financial Institutions," Review of Development Economics, Wiley Blackwell, vol. 1(1), pages 34-56, February.
    21. Yaron, Jacob, 1994. "What Makes Rural Finance Institutions Successful?," World Bank Research Observer, World Bank Group, vol. 9(1), pages 49-70, January.
    22. Braverman, Avishay & Guasch, J. Luis, 1986. "Rural credit markets and institutions in developing countries: Lessons for policy analysis from practice and modern theory," World Development, Elsevier, vol. 14(10-11), pages 1253-1267.
    23. Kochar, Anjini, 1997. "An empirical investigation of rationing constraints in rural credit markets in India," Journal of Development Economics, Elsevier, pages 339-371.
    24. Biais, Bruno & Gollier, Christian, 1997. "Trade Credit and Credit Rationing," Review of Financial Studies, Society for Financial Studies, vol. 10(4), pages 903-937.
    25. Conning, Jonathan & Udry, Christopher, 2007. "Rural Financial Markets in Developing Countries," Handbook of Agricultural Economics, Elsevier.
    26. Hoff, Karla & Stiglitz, Joseph E., 1997. "Moneylenders and bankers: price-increasing subsidies in a monopolistically competitive market," Journal of Development Economics, Elsevier, pages 429-462.
    27. Bell, Clive & Srinivasan, T N & Udry, Christopher, 1997. "Rationing, Spillover, and Interlinking in Credit Markets: The Case of Rural Punjab," Oxford Economic Papers, Oxford University Press, vol. 49(4), pages 557-585, October.
    28. Robert M. Townsend, 1978. "Intermediation with Costly Bilateral Exchange," Review of Economic Studies, Oxford University Press, vol. 45(3), pages 417-425.
    29. Bell, Clive, 1990. "Interactions between Institutional and Informal Credit Agencies in Rural India," World Bank Economic Review, World Bank Group, vol. 4(3), pages 297-327, September.
    30. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
    31. Townsend, Robert M, 1983. "Financial Structure and Economic Activity," American Economic Review, American Economic Association, vol. 73(5), pages 895-911, December.
    32. Bose, Pinaki, 1998. "Formal-informal sector interaction in rural credit markets," Journal of Development Economics, Elsevier, pages 265-280.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tutlani, Ankur, 2016. "Borrowers’ Participation in Group Borrowing," MPRA Paper 69506, University Library of Munich, Germany.
    2. Alexander Karaivanov & Anke Kessler, 2013. "A Friend in Need is a Friend Indeed: Theory and Evidence on the (Dis)Advantages of Informal Loans," Discussion Papers dp13-03, Department of Economics, Simon Fraser University, revised Apr 2013.
    3. Nguyen, Nhung & Luu, Nhung, 2013. "Determinants of Financing Pattern and Access to Formal -Informal Credit: The Case of Small and Medium Sized Enterprises in Viet Nam," MPRA Paper 81868, University Library of Munich, Germany, revised May 2013.
    4. Lutz G. Arnold & Benedikt Booker, 2012. "Good Intentions Pave the Way to ... the Local Moneylender," Working Papers 126, Bavarian Graduate Program in Economics (BGPE).
    5. Samuel Lee & Petra Persson, 2016. "Financing from Family and Friends," Review of Financial Studies, Society for Financial Studies, pages 2341-2386.
    6. repec:zbw:espost:170696 is not listed on IDEAS
    7. Börner, Jan & Shively, Gerald E. & Wunder, Sven & Wyman, Miriam, 2012. "How do rural households respond to economic shocks? Insights from hierarchical analysis using global data," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126143, International Association of Agricultural Economists.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:deveco:v:96:y:2011:i:1:p:16-29. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/devec .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.