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Exploiting the Unbanked: Evidence from Singapore's Unlicensed Moneylending Market

Author

Listed:
  • Leong, Kaiwen

    () (Nanyang Technological University, Singapore)

  • Li, Huailu

    () (Fundan University)

  • Xu, Haibo

    () (Fudan University, China)

Abstract

Using a unique dataset covering the borrowing behaviour of over a thousand borrowers, we study the unlicensed moneylending market in Singapore. In this market, borrowers search for lenders, and lenders decide how much profit to extract from borrowers. Lenders harass borrowers into compliance. We observe that different lenders apply different markups on different borrowers. Higher markups discourage borrowers from repeatedly borrowing from a particular lender. Increased enforcement specifically targeted at reducing the number of lenders in this market will increase markups, but will not deter borrowers from becoming recurrent borrowers because they have fewer lenders to choose from.

Suggested Citation

  • Leong, Kaiwen & Li, Huailu & Xu, Haibo, 2018. "Exploiting the Unbanked: Evidence from Singapore's Unlicensed Moneylending Market," IZA Discussion Papers 11786, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp11786
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    References listed on IDEAS

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    1. Manolis Galenianos & Rosalie Liccardo Pacula & Nicola Persico, 2012. "A Search-Theoretic Model of the Retail Market for Illicit Drugs," Review of Economic Studies, Oxford University Press, vol. 79(3), pages 1239-1269.
    2. Kenneth Burdett & Ricardo Lagos & Randall Wright, 2004. "An On-The-Job Search Model Of Crime, Inequality, And Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(3), pages 681-706, August.
    3. Veronica Guerrieri & Robert Shimer & Randall Wright, 2010. "Adverse Selection in Competitive Search Equilibrium," Econometrica, Econometric Society, vol. 78(6), pages 1823-1862, November.
    4. Manolis Galenianos & Alessandro Gavazza, 2017. "A Structural Model of the Retail Market for Illicit Drugs," American Economic Review, American Economic Association, vol. 107(3), pages 858-896, March.
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    More about this item

    Keywords

    illegal lending; enforcement; markup;

    JEL classification:

    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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