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An Analysis of Social Proximity and Interest Rate in Rural South India

Author

Listed:
  • Augendra Bhukuth

    (IPAG Business School)

  • Jérôme Ballet

    (Passages - UB - Université de Bordeaux - ENSAP Bordeaux - École nationale supérieure d'architecture et du paysage de Bordeaux - UBM - Université Bordeaux Montaigne - CNRS - Centre National de la Recherche Scientifique)

  • Katia Radja

    (CEARC - Cultures, Environnements, Arctique, Représentations, Climat - UVSQ - Université de Versailles Saint-Quentin-en-Yvelines - CNRS - Centre National de la Recherche Scientifique)

Abstract

In this article we present the role of social proximity in the formation of the interest rate in the informal credit market in the state of Tamil Nadu, India. This paper is unique in the sense that it deals with social proximity and the formation of interest rate. If a lot of articles deal with the interest rate and social capital, none of them have attempted to link the two variables. A qualitative and quantitative survey was conducted on debt bondage in 2003-2004. The impact of social proximity defined as strong and weak is captured by a simple regression model. We show that a strong social proximity has a negative impact on the interest rate. Furthermore, the frequency of transactions has a positive impact on the interest rate, which means that asymmetrical information does not play a central role in our study. We then explain the relation between social proximity and interest rate by using the concept of rights and obligations.

Suggested Citation

  • Augendra Bhukuth & Jérôme Ballet & Katia Radja, 2018. "An Analysis of Social Proximity and Interest Rate in Rural South India," Post-Print hal-01877007, HAL.
    • Handle: RePEc:hal:journl:hal-01877007
    DOI: 10.14254/2071-789X.2018/11-1/10
    Note: View the original document on HAL open archive server: https://hal.science/hal-01877007
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    References listed on IDEAS

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