The effects of policy interventions to limit illegal money lending

Kaiwen Leong, Huailu Li, Nicola Pavanini and Christoph Walsh

Journal of Financial Economics, 2024, vol. 159, issue C

Abstract: We estimate a structural model of borrowing and lending in the illegal money lending market using a unique panel survey of 1,090 borrowers taking out 11,032 loans from loan sharks. We use the model to evaluate the effects of interventions aimed at limiting this market. We find that an enforcement crackdown that occurred during our sample period increased lenders’ unit cost of harassment and interest rates, while lowering volume of loans, lender profits and borrower welfare. Policies removing borrowers in the middle of the repayment ability distribution, reducing gambling or reducing time discounting are also effective at lowering lender profitability.

Keywords: Illegal money lending; Loan sharks; Law enforcement; Crime; Structural estimation (search for similar items in EconPapers)
Date: 2024
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Working Paper: The Effects of Policy Interventions to Limit Illegal Money Lending (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:159:y:2024:i:c:s0304405x2400117x

DOI: 10.1016/j.jfineco.2024.103894

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