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The Distributive impact of reforms in credit enforcement: Evidence from Indian debt recovery tribunals

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Listed:
  • Ulf von Lilienfeld-Toal

    (Department of Finance, Stockholm School of Economics)

  • Dilip Mookherjee

    (Department of Economics, Boston University)

  • Sujata Visaria

    (Department of Economics, Boston University)

Abstract

It is generally presumed that strengthening the enforcement of lender rights expands the set of incentive compatible loan contracts, resulting in increased access to credit for all types of borrowers. This is based on an implicit assumption of inlnitely elastic supply of loans. With inelastic supply, strengthening enforcement can result in greater exclusion of poor borrowers from credit markets and a reallocation of credit from poor to wealthy borrowers. Using a dataset of capital project loans given by a large Indian bank to lrms of varying asset sizes, we lnd evidence of such adverse distributional impacts of a reform to strengthen lender rights implemented across Indian states in the 1990s.

Suggested Citation

  • Ulf von Lilienfeld-Toal & Dilip Mookherjee & Sujata Visaria, 2009. "The Distributive impact of reforms in credit enforcement: Evidence from Indian debt recovery tribunals," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 09-03, Indian Statistical Institute, New Delhi, India.
  • Handle: RePEc:ind:isipdp:09-03
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    Cited by:

    1. Aboal, Diego & Noya, Nelson & Rius, Andrés, 2014. "Contract Enforcement and Investment: A Systematic Review of the Evidence," World Development, Elsevier, vol. 64(C), pages 322-338.
    2. Gregory F Udell, 2015. "SME Access to Intermediated Credit: What Do We Know and What Don't We Know?," RBA Annual Conference Volume,in: Angus Moore & John Simon (ed.), Small Business Conditions and Finance Reserve Bank of Australia.
    3. Kaushik Basu & C Marks, 2011. "Understanding Inflation and Controlling It," Working Papers id:4481, eSocialSciences.
    4. Ugo Troiano & Ricardo Perez-Truglia, 2015. "Tax Debt Enforcement: Theory and Evidence from a Field Experiment in the United States," 2015 Meeting Papers 134, Society for Economic Dynamics.
    5. World Bank & International Finance Corporation, 2013. "Doing Business 2014 : Understanding Regulations for Small and Medium-Size Enterprises," World Bank Publications, The World Bank, number 16204.
    6. Gabriel Madeira, 2014. "Legal enforcement, default and heterogeneity of project-financing contracts," Annals of Finance, Springer, vol. 10(4), pages 569-602, November.
    7. repec:eee:irlaec:v:52:y:2017:i:c:p:29-43 is not listed on IDEAS
    8. Bing Xu, 2017. "Permissible collateral and access to finance: evidence from a quasi-natural experiment," Working Papers 1750, Banco de España;Working Papers Homepage.
    9. Madestam, Andreas, 2014. "Informal finance: A theory of moneylenders," Journal of Development Economics, Elsevier, vol. 107(C), pages 157-174.
    10. Calomiris, Charles W. & Larrain, Mauricio & Liberti, José & Sturgess, Jason, 2017. "How collateral laws shape lending and sectoral activity," Journal of Financial Economics, Elsevier, vol. 123(1), pages 163-188.
    11. Degryse, Hans & Ioannidou, Vasso & Liberti, Jose Maria & Sturgess, Jason, 2016. "When Do Laws and Institutions Affect Recovery Rates on Collateral?," CEPR Discussion Papers 11406, C.E.P.R. Discussion Papers.
    12. Aloisio Araujo & Bruno Funchal, 2015. "How Much Should Debtors be Punished in Case of Default?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 47(2), pages 229-245, April.
    13. Herrala, Risto, 2014. "Forward-looking reaction to bank regulation," Working Paper Series 1645, European Central Bank.
    14. Guilherme Lichand & Rodrigo R. Soares, 2014. "Access to Justice and Entrepreneurship: Evidence from Brazil's Special Civil Tribunals," Journal of Law and Economics, University of Chicago Press, vol. 57(2), pages 459-499.
    15. John Y. Campbell & Tarun Ramadorai & Benjamin Ranish, 2012. "How Do Regulators Influence Mortgage Risk: Evidence from an Emerging Market," NBER Working Papers 18394, National Bureau of Economic Research, Inc.
    16. Nuri Ersahin & Rustom M. Irani & Katherine Waldock, 2016. "Creditor Rights and Entrepreneurship: Evidence from Fraudulent Transfer Law," Working Papers 16-31, Center for Economic Studies, U.S. Census Bureau.
    17. Baghai, Ramin & Becker, Bo, 2016. "Non-rating revenue and conflicts of interest," CEPR Discussion Papers 11508, C.E.P.R. Discussion Papers.
    18. Ongena, Steven & Cerqueiro, Geraldo & Roszbach, Kasper, 2016. "Collateral damage? On collateral, corporate financing and performance," Working Paper Series 1918, European Central Bank.
    19. repec:eee:finsta:v:33:y:2017:i:c:p:1-22 is not listed on IDEAS
    20. Hainz, Christa Maria & Danzer, Alexander, 2015. "Property rights, collateral and interest rates. Evidence from Vietnam," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112880, Verein für Socialpolitik / German Economic Association.
    21. Kanz, Martin, 2012. "What does debt relief do for development ? evidence from India's bailout program for highly-indebted rural households," Policy Research Working Paper Series 6258, The World Bank.
    22. Anastasia Cozarenco & Ariane Szafarz, 2016. "Microcredit in Industrialized Countries: Unexpected Consequences of Regulatory Loan Ceilings," Working Papers CEB 16-021, ULB -- Universite Libre de Bruxelles.
    23. Favara, Giovanni & Morellec, Erwan & Schroth, Enrique & Valta, Philip, 2017. "Debt enforcement, investment, and risk taking across countries," Journal of Financial Economics, Elsevier, vol. 123(1), pages 22-41.
    24. Denyer Willis, Graham & Mota Prado, Mariana, 2014. "Process and Pattern in Institutional Reforms: A Case Study of the Police Pacifying Units (UPPs) in Brazil," World Development, Elsevier, vol. 64(C), pages 232-242.
    25. Murillo Campello & Mauricio Larrain, 2015. "Enlarging the Contracting Space: Collateral Menus, Access to Credit, and Economic Activity," NBER Working Papers 21690, National Bureau of Economic Research, Inc.

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