Informal Financing: An Evidence of Trade-Loan Nexus Between Money Lenders and Borrowers

Jugnu Ansari

Abstract


Using primary survey data of farmers in a major potato producing district of West Bengal state in India, this study provides theoretical and empirical perspectives that trade-loan nexus increases defaults on agricultural loans through high repayment obligations resulting from high interest rates and low income resulting from unfair trade in the local oligopoly and oligopsony markets for inputs and output, respectively. The increased defaults help the money lender to widen her market share in the rural agricultural loan market as the formal sector becomes reluctant to lend in the presence of pervasive defaults. In this study, we revisit the relationship between money lenders and farmers through the age old trade-loan nexus in the presence of formal banking sector and Government sponsored scheme to meet credit needs of farmers. These findings have crucial implications for policies aimed at financial inclusion in the emerging economies context.  


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Copyright (c) 2017 Jugnu Ansari

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.