The limits to informal financial intermediation

Christensen, Garry

doi:10.1016/0305-750x(93)90029-9

Cited by 28 publications

(16 citation statements)

References 8 publications

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“…Empirical evidence of the importance of curb market loans in financing investment expenditures can be found in Van Wijnbergen (1985), Lim (1987), Christensen (1993), Gupta & Lensink (1996), Kan (2000), Dasgupta (2004Dasgupta ( , 2005a. Van Wijnbergen (1985) and Lim (1987) even validate the stagflationary claim of financial liberalization for South Korea and the Phillipines, respectively, by taking into account the informal money market.…”

Section: Firmsmentioning

confidence: 99%

“…Van Wijnbergen (1985) and Lim (1987) even validate the stagflationary claim of financial liberalization for South Korea and the Phillipines, respectively, by taking into account the informal money market. Christensen (1993) argued that the informal financial sector is more adept than the formal sector in reducing default risks by the use of a collateral substitute and, hence, is a major source of financing investment in developing countries. He, however, warned that informal market loans might be restrictive as well, in the sense, that they might be used to finance small-scale investments.…”

Section: Firmsmentioning

confidence: 99%

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An Endogenous Growth Model of a Financially Repressed Small Open Economy

Goswami

Gupta

2009

International Economic Journal

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The paper develops a monetary endogenous growth model of a financially repressed small open economy, characterized by curb markets, capital mobility, transaction costs in domestic and foreign capital markets, and a flexible exchange rate system, to analyze the impact of financial liberalization -interest rate deregulation and lower multiple reserve requirements -on growth and inflation. When the model is calibrated to match world figures, we find that interest rate deregulation enhances growth and reduces inflation in steady-state. For relatively smaller transaction costs in the curb market, the above result is, however, reversed. Under such circumstances, lowering the transaction costs in the foreign capital market tends to restore the growth-enhancing (inflation-reducing) capabilities of interest rate deregulation. Lower reserve requirements, though, always ensures lower (higher) steady-state inflation (growth).

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Section: Firmsmentioning

confidence: 99%

Section: Firmsmentioning

confidence: 99%

An Endogenous Growth Model of a Financially Repressed Small Open Economy

Goswami

Gupta

2009

International Economic Journal

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“…A major economic problem in developing countries is financial intermediation -the mobilization of capital from one group (savers/lenders) and its simultaneous allocation to meet the needs of another group (borrowers/entrepreneurs) (Christensen, 1993). Critical for efficient capital mobilization and allocation, financial intermediation can be performed through various forms of instruments, the three most important ones being equities (stocks), long-term loans (bonds), and short-term loans (credit) (Stiglitz, 1989b).…”

Section: The Economic Role Of Informal Credit Marketsmentioning

confidence: 99%

“…This raises the transaction costs. Because loans usually come from lenders' equity instead of third-party deposits, the money creation function of the informal credit market is limited (Christensen, 1993). In transitional societies where old social relations and networks have broken down before new institutions are established, no effective informal credit market may exist.…”

Section: The Economic Role Of Informal Credit Marketsmentioning

confidence: 99%

Informal credit markets and economic development in Taiwan

Tang¹

1995

World Development

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Summary. -Taiwan is a case which shows how informal credit markets help to compensate for the limitations of the formal financial system, especially in satisfying the needs of medium and small enterprises. Government regulations and policies affect the way participants in informal credit markets solve selection, enforcement, and incentive problems. Recent changes demonstrate the continued resilience and relevance of informal credit markets during a process of financial liberalization.

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“…It is therefore important to assess the impact of liberalisation in general on informal financial services for the poor, and the pressure on micro-finance institutions in particular to attain financial sustainability 106 Despite the recent warming in development thinking towards informal lenders, there are a number of reasons why intensifying competition in the traditional markets of some informal lenders remains important for antipoverty It is doubtful whether the informal sector actually intermediates in the sense of mobilising capital from informal savers to informal borrowers. Christensen (1993) shows that informal financial arrangements tend to be either for savings or for lending, and are less engaged in intermediation (excepting some mutual assistance groups and savings and credit associations). Many informal arrangements simply provide safe-keeping for savers.…”

Section: Servicing the Poormentioning

confidence: 99%

Financial Sector Liberalisation: Should the Poor Applaud?

Yaqub¹

1998

IDS Bulletin

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Summary Increasingly micro‐finance is being encouraged to reformulate its primary focus from explicit antipoverty work to concentrate instead on financial sustainability. Much of this approach is predicated on neoclassical theory which calls for liberalisation of financial markets. It is asserted that, apart from prudential supervision, liberalised markets would create an enabling environment for better financial servicing of the poor; and it is time that micro‐finance programmes became financially self‐sustaining, and therefore free of subsidies. Empirical testing of these views remains inconclusive, indicating the underlying fact that in many cases financial markets, even after liberalisation, have not behaved entirely as modelled. Though pro‐poor interventions in financial markets often have been unsuccessful, they were motivated by valid concerns about the poor being under‐served. The main contention of this article is that the current wisdom overestimates what liberalisation can achieve for greater market competition in serving the poor. This is because of its exaggerated faith in the role of interest rates in market clearance, and its inadequate account of informal financial service providers. Stronger, rather than reduced, focus on the poor and poorest, even if via subsidised micro‐finance programmes, would help develop financial markets. As in other areas of economic reform, selfish motives of the market may require a helping hand to sustain poor‐friendly innovations in service provision.

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The limits to informal financial intermediation

Cited by 28 publications

References 8 publications

An Endogenous Growth Model of a Financially Repressed Small Open Economy

An Endogenous Growth Model of a Financially Repressed Small Open Economy

Informal credit markets and economic development in Taiwan

Financial Sector Liberalisation: Should the Poor Applaud?

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