Will more credit increase interest rates in rural Nepal?
Research report
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http://hdl.handle.net/11250/2474651Utgivelsesdato
2000-01-01Metadata
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Originalversjon
(PDF is a revised version of Department of Economics. University of Bergen. no. WP-21-2000)Sammendrag
We test two alternative models of interest rates determination in informal rural credit markets, using LSMS data from Nepal. We find strong support for a capacity-constrained collusive oligopoly model with full information about actual borrowers that supports heterogeneous interest rates. We find only marginal support for a competitive cost-pricing model with imperfect information. Price discrimination depends on the observable characteristics; caste, installment period and geographical region. Interest rates decrease as village lending capacity increases up to a certain level of capacity. Interest rates do not depend on risk related variables such as land value and loan size.