New Economics Papers
on Microfinance
Issue of 2006‒11‒25
one paper chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Why do poor farmers default less?: Case of Indian informal credit market A game theoretic exploration By Rajeev, Meenakshi; Ranade, Ranjeet; Deb, Sarmistha

  1. By: Rajeev, Meenakshi; Ranade, Ranjeet; Deb, Sarmistha
    Abstract: In the face of many debt-ridden farmers committing suicide, the agricultural credit delivery system assumes a significant role in the agrarian economy of India. This paper looks at the credit delivery system in rural India on the basis of a field survey carried out in the State of West Bengal. Given the reality that access to formal sector credit is not smooth for the marginal farmers, the emergence of a trader class as a major source of credit for working capital (without demanding any collateral), appears to be beneficial for these poor farmers. Surprisingly, the repayment rates of the comparatively poorer farmers are found to be better than that of the financially better-off farmers. The paper constructs a game theoretic model to show how in the face of asymmetric information, necessity to build trust has led to this behaviour.
    Keywords: Key Words: Borrower; lender; trader; strategy
    JEL: Q14
    Date: 2006–11–01

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