Lending to the Unbanked: Relational Contracting with Loan Sharks

Kevin Lang, Kaiwen Leong, Huailu Li and Haibo Xu

No 26400, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study roughly 11,000 loans from unlicensed moneylenders to over 1,000 borrowers in Singapore and provide basic information about this understudied market. Borrowers frequently expect to repay late. While lenders do rely on additional punishments to enforce loans, the primary cost of not repaying on time is compounding of a very high interest rate. We develop a very simple model of the relational contract between loan sharks and borrowers and use it to predict the effect of a crackdown on illegal moneylending. Consistent with our model, the crackdown raised the interest rate and lowered the size of loans.

JEL-codes: I28 I3 K42 (search for similar items in EconPapers)
Date: 2019-10
New Economics Papers: this item is included in nep-cta, nep-iue, nep-law, nep-sea and nep-ure
Note: DEV LE PE
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w26400.pdf (application/pdf)

Related works:
Working Paper: Lending to the Unbanked: Relational Contracting with Loan Sharks (2020)
Working Paper: Lending to the Unbanked: Relational Contracting with Loan Sharks (2020)
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:nbr:nberwo:26400

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w26400

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().