Entry of Formal Lenders and the Size of the Informal Credit Market

Rajlakshmi Mallik

Journal of Institutional and Theoretical Economics (JITE), 2007, vol. 163, issue 4, 706-730

Abstract: This paper models the formal-informal interaction that is typical of LDC credit markets characterised by financial duality. It considers the effects of free entry of formal lenders on the size of the informal credit market. We show that free entry by formal lenders increases their reach to collateral-poor borrowers. However, strategic interaction with informal lenders reduces the effectiveness of free entry in curbing informal lending if the formal administered interest rate is high. Free entry cannot eliminate the informal credit market altogether, although it will be more effective than deregulation of the interest rate.

JEL-codes: C72 G21 G28 (search for similar items in EconPapers)
Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mohrsiebeck.com/en/article/entry-of-fo ... 28093245607783242972 (text/html)
Fulltext access is included for subscribers to the printed version.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mhr:jinste:urn:sici:0932-4569(200712)163:4_706:eoflat_2.0.tx_2-p

Ordering information: This journal article can be ordered from
Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany

Access Statistics for this article

Journal of Institutional and Theoretical Economics (JITE) is currently edited by Gerd Mühlheußer and Bayer, Ralph-C

More articles in Journal of Institutional and Theoretical Economics (JITE) from Mohr Siebeck, Tübingen
Bibliographic data for series maintained by Thomas Wolpert ().