Safe Credit to the Poor: The Role of Anti‐Usury Policies

27 Pages Posted: 3 Apr 2019

See all articles by Lisa Crosato

Lisa Crosato

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS)

Lucia Dalla Pellegrina

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS)

Date Written: May 2019

Abstract

Usury regulations focus both on explicit recommendations, such as disclosure statements in lending acts or interest rate caps, and on incentives for the formal banking sector to reach the poor. Considerable attention is also devoted to adequate sanctions for the practice of usury. We propose a theoretical model to investigate where to direct reforms to curb usury. Our primary policy implication is the convenience of polarizing the allocation of public resources in either legal safeguards for formal lenders or sanction enforcement against usurers. Furthermore, we demonstrate that in developing countries such policy interventions may backfire when borrowers' higher wealth implies increasing inequality in its distribution. Therefore, countries undertaking reforms against predatory lending should be aware of their growth path during transition.

Keywords: illegal financial markets, income distribution, institutional arrangements, usury

Suggested Citation

Crosato, Lisa and Dalla Pellegrina, Lucia, Safe Credit to the Poor: The Role of Anti‐Usury Policies (May 2019). Development Policy Review, Vol. 37, Issue 3, pp. 423-449, 2019. Available at SSRN: https://ssrn.com/abstract=3365171 or http://dx.doi.org/10.1111/dpr.12370

Lisa Crosato (Contact Author)

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Lucia Dalla Pellegrina

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

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