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Financial Technology and Informal Credit: A Structuralist Macro Model

In: Financial Inclusion for Viksit Bharat

Author

Listed:
  • Moumita Basu

    (Aliah University, Department of Economics)

  • Ranjanendra Narayan Nag

    (St. Xavier’s College (Autonomous), Department of Economics)

Abstract

Purpose The effects of financial inclusion in India have been a widely discussed and emerging issue in recent times. Financial inclusion has several interconnected dimensions namely financial literacy, subsidies and financial aids, digital financial services, use of FinTech etc. In this paper we will sharply bring in focus the role of financial technology (FinTech) which has profound bearing on socio economic development. Design/Methodology/Approach The paper develops a dual economy structuralist macro model. The economy consists of two sectors, namely an industrial sector and an agriculture sector. Output is demand determined in the industrial sector. On the other hand, all commodity and factor prices are flexible in the informal agriculture sector. Industrial price is fixed. The industrial sector uses imported oil as an intermediate input along with labour and capital in the production process. Credit plays a significant role in determining output level in the agriculture sector. There are two sources of credit, namely formal and informal credit. Moreover, the formal interest rate is fixed by the central bank which causes excess demand and consequent credit rationing. This in turn leads to emergence of informal credit market in which interest rate is endogenously determined. Originality/Value This paper explores the role of FinTech in determining interaction between food price, food production, industrial output and exchange rate and informal interest rate. Moreover, the paper analyzes the effects of credit risk and an increase in exogenous capital inflow as the consequences of FinTech. In addition, the feedback effects of improved financial inclusion on policy tools are examined in terms of an increase in interest rate subsidy for agricultural farmers.

Suggested Citation

  • Moumita Basu & Ranjanendra Narayan Nag, 2026. "Financial Technology and Informal Credit: A Structuralist Macro Model," Springer Books, in: Vikas Dixit & Rilina Basu Banerjee & Nisar Ahmad Khan (ed.), Financial Inclusion for Viksit Bharat, chapter 8, pages 307-344, Springer.
    • Handle: RePEc:spr:sprchp:978-981-92-0807-4_8
    DOI: 10.1007/978-981-92-0807-4_8
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    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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