Horizontal and Vertical Linkages Between Formal and Informal Credit Markets in Backward Agriculture: A Theoretical Analysis

Indian Journal of Social Development, Vol. 2, No. 1, June 2002

13 Pages Posted: 24 May 2002  

Sarbajit Chaudhuri

University of Calcutta

Jayanta Kumar Dwibedi

Brahmmananda Keshab Chandra (B.K.C.) College - Department of Economics

Abstract

The paper shows that the policy of forging a vertical linkage between the formal and informal credit markets is distinctly superior to the existing credit policy of horizontally substituting the informal sector by the formal one. An inflow of subsidized formal credit to the informal lenders not only ensures better terms of borrowing to the small borrowers but also leads to higher agricultural productivity vis-a-vis the horizontal linkage case. Even if the informal sector lenders are allowed to collude, the informal interest rate is still lower in the vertical linkage case.

Keywords: Formal credit, informal credit, horizontal linkage, vertical linkage, moneylender, collusion

JEL Classification: Q14, O17, D89

Suggested Citation

Chaudhuri, Sarbajit and Dwibedi, Jayanta Kumar, Horizontal and Vertical Linkages Between Formal and Informal Credit Markets in Backward Agriculture: A Theoretical Analysis. Indian Journal of Social Development, Vol. 2, No. 1, June 2002. Available at SSRN: https://ssrn.com/abstract=310439 or http://dx.doi.org/10.2139/ssrn.310439

Sarbajit Chaudhuri (Contact Author)

University of Calcutta ( email )

56A, B.T. Road
Kolkata, West Bengal 700 050
India
+91 33 2557 5082 (Phone)
+91 33 2844 1490 (Fax)

HOME PAGE: http://econpapers.repec.org/RAS/pch11.htm

Jayanta Kumar Dwibedi

Brahmmananda Keshab Chandra (B.K.C.) College - Department of Economics ( email )

Kolkata 700 035 West Bengal
India
91-33-564-4950 (Phone)

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