Answers

2016-01-27T18:12:47+05:30
Informal market: individuals o Can accept less traditional forms of collateral-large landowner adjacent to poor farmer o Can more easily monitor each other.fFacts about informal credit markets o Loan interest rates can be very high—avg annual rate on loan as high as 80% (Aleem) o Spread between loan and deposit rates very high o low default rates o Large amount of variation within loan and borrow rates o credit rationing--demand is greater than supply • Why? o Market highly segmented--fixed clientele o a lot of interlinked credit--ie landlords and tenants o exclusivity o high monitoring costs • these four factors lead to highly individualized interest rates • the monitoring costs lead to large difference between loan and deposit rates • can also explain credit rationing
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