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A Theory of Imperfect Competition in Rural Credit Markets in Developing Countries: Towards a Theory of Segmented Credit Mark
Working paper
Karla Hoff, Joseph Stiglitz
June 1993 |
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| The prevailing models of credit markets generally assume that the information asymmetries and enforcement costs between a given buyer and lender are the same for all lenders. For example in Stiglitz and Weiss (1981,1983), lenders were homogeneous, borrowers were heterogeneous, but in the absence of some screening mechanisms, observationally the same to the lender; the analytical problem was to design an indirect mechanism to screen out the riskiest borrowers and the riskiest projects. But in small, local markets some lenders have the ability to obtain virtually complete information about the creditworthiness of a prospective borrower, and thus tehy do not rely on indirect screening mechanisms at all, as emphasized particulalry in studies of rural credit markets in developing countries. While a national bank that deals on a personal basis with loan applicants may have very incomplete information about their creditworthiness, a local bank who has a longstanding relationship with a firm, or a trader-moneylender,who has marketed a farmer's crop for many seasons may have, nearly complete information. |
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| Last updated on: 12/19/2006 |
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