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

  • 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)

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.

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Paper provided by Indian Statistical Institute, New Delhi, India in its series Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers with number 09-03.

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Length: 36 pages
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:ind:isipdp:09-03
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  8. Reint Gropp & John Karl Scholz & Michelle White, 1996. "Personal Bankruptcy and Credit Supply and Demand," NBER Working Papers 5653, National Bureau of Economic Research, Inc.
  9. Sujata Visaria, 2009. "Legal Reform and Loan Repayment: The Microeconomic Impact of Debt Recovery Tribunals in India," American Economic Journal: Applied Economics, American Economic Association, vol. 1(3), pages 59-81, July.
  10. Christopher James & David C. Smith, 2000. "Are Banks Still Special? New Evidence on Their Role in the Corporate Capital-Raising Process," Journal of Applied Corporate Finance, Morgan Stanley, vol. 13(1), pages 52-63.
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