Credit Markets in Northern Nigeria: Credit as Insurance in a Rural Economy

Christopher Udry

The World Bank Economic Review, 1990, vol. 4, issue 3, 251-69

Abstract: This article addresses the issue of incomplete markets and imperfect information in the context of credit markets in rural northern Nigeria. In much recent theoretical literature, the problems of moral hazard and adverse selection are assumed to be decisive for the organization of agrarian institutions. In contrast, it is found that in the four villages surveyed credit transactions take advantage of the free flow of information within rural communities. Information asymmetrics between borrower and lender are unimportant, and their institutional consequences--the use of collateral and interlinked contracts--are absent. Credit transaction play a direct role in pooling risk between households through the use of contracts in which the repayment owed by the borrower depends on the realization of random production shocks by both the borrower and the lender. Copyright 1990 by Oxford University Press.

Date: 1990
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