Paper

Imperfect Information and Rural Credit Markets - Puzzles and Policy Perspectives

Moving towards a better understanding of rural credit markets

Rural credit markets have been at the centre of policy intervention in developing countries over the past forty years. Many governments, supported by multilateral and bilateral aid agencies, have devoted considerable resources to supplying cheap credit to farmers in a myriad of institutional settings.

The results of many of these interventions have been disappointing, and one explanation for this must be that they were based on an inadequate understanding of the workings of rural credit markets.

The articles in this symposium issue are devoted to empirical and theoretical investigations of rural credit markets, in the framework of the imperfect information paradigm. The authors show how this framework is useful not only in explaining puzzling features of these markets, but also in providing a policy perspective to assess the successes and failures of specific interventions.

The paper suggests that a rich research agenda lies ahead which would enable us to:

  • Investigate the extent to which the findings of these studies can be generalised to other countries;
  • Examine the effectiveness of the variety of institutions and mechanisms that can screen and monitor loan applicants;
  • Evaluate the consequences of a variety of government interventions in credit markets, taking into account the information asymmetries and enforcement problems which are endemic in developing countries.

[Adapted from author]

About this Publication

By Hoff, K. & Stiglitz, J.E.
Published