Vertical links between formal and informal financial institutions

Maria Sagrario Flora, Debraj Ray

    Research output: Contribution to journalArticlepeer-review

    Abstract

    The paper investigates vertical linkages between formal and informal financial institutions. Specifically, it studies a policy that expands formal credit to informal lenders, in the hope that this will improve loan terms for borrowers who are shut out of the formal sector. Special attention is paid to the Philippines. It is argued that the effects of stronger vertical links depend on the form of lender competition. In particular, if the relationship between lenders is one of strategic cooperation (sustained by threats of reprisal in a repeated setting), an expansion of formal credit may worsen the terms faced by informal borrowers.

    Original languageEnglish (US)
    Pages (from-to)34-56
    Number of pages23
    JournalReview of Development Economics
    Volume1
    Issue number1
    DOIs
    StatePublished - 1997

    ASJC Scopus subject areas

    • Geography, Planning and Development
    • Development

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