On the Determination of Interest Rates in Rural Credit Markets: A Case Study from the Sudan

Samir Taha Saleem

Cambridge Journal of Economics, 1987, vol. 11, issue 2, 165-72

Abstract: This paper shows the lender's risk theory is inadequate for explai ning the high interest rates prevailing in the Sudanese rural credit markets and that these rates can best be explained by the existing po wer relations between the lender and the borrower operating through t he undervaluation of the borrower's collateral. A theoretical framewo rk which accommodates the lender's risk theory and the theory of coll ateral undervaluation is formulated. This is then confronted with act ual data in order to examine the empirical relevance of the two theor ies. It was found that the lender's risk theory can explain only abou t 12 percent of the observed rates. Copyright 1987 by Oxford University Press.

Date: 1987
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