An Economic Framework for Understanding Micro-Credit in Developing Countries

Calum Turvey and Rong Kong

No 9929, 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

Abstract: To reduce vulnerability and food insecurity this paper investigates the economics of micro-credit. We provide a model that shows how a micro-credit market based on trust can co-exist with a commercial collateral-based market. This model is developed in detail and certain propositions are supported using dominant strategies in a trust-honour game based on the prisoner's dilemma. From a policy point of view the theoretical model indicates that trust-based lending, coupled with certain incentives, can go far in supporting growth opportunities in developing countries. It is argued that development policy should be flexible enough to permit trust-based micro-lending to the poor, regardless of how counter-intuitive this must appear to the conventional wisdom.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 19
Date: 2007
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ageconsearch.umn.edu/record/9929/files/sp07tu01.pdf (application/pdf)

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:ags:aaea07:9929

DOI: 10.22004/ag.econ.9929

Access Statistics for this paper

More papers in 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().