Advertisement

The Persistence of Informal Finance

  • Kellee S. Tsai

Abstract

Regardless of regime type, most developing countries face the challenge of providing credit to lower-income portions of their rural populations (Bouman and Hospes 1994; Hoff, Braverman, and Stiglitz 1993). China and India are no exceptions. Due to perceived deficiencies in the formal financial system, in both countries the state has attempted to alleviate rural poverty by establishing government microfinance programs. Even with such programs, however, small business owners and farmers in both China and India rely primarily on curb market finance. Indeed, in some cases, the scale of informal finance actually increases in communities targeted with more official credit. One of the reasons that even an expanded supply of formal finance is insufficient to meet demand is because state policies are seldom implemented properly. Furthermore, the reality of segmented credit markets at the local level means that government microfinance programs often fail to reach their intended clientele. Developmental outcomes often deviate from state intentions due to complex political and economic dynamics at the local level.

Keywords

Central Bank Asian Development Bank Microfinance Institution Credit Cooperative Repayment Rate 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Adams, D. W. and Fitchett, D. A. (eds.) (1992). Informal Finance in Low-Income Countries. Boulder: Westview Press.Google Scholar
  2. Adams, D. W., Graham, D. and von Pischke, J. D. (1984). Undermining Rural Development with Cheap Credit. Boulder: Westview Press.Google Scholar
  3. Agricultural Finance Corporation (AFC) (1988). Agricultural Credit Review: Role and Effectiveness of Lending Institutions, Vol. V. Bombay: AFC.Google Scholar
  4. Ashe, J. (2002). Self-Help Groups and Integral Human Development. Cambridge: Brandeis University & Catholic Relief Services.Google Scholar
  5. Asian Development Bank (ADB) (2000). The Role of Central Banks in Asia and the Pacific. Manilla: ADB.Google Scholar
  6. Bagchi, A. K. (1972). Private Investment in India:1900–1939. Cambridge: Cambridge University Press.Google Scholar
  7. Bansal, H. (2003). “SHG-Bank Linkage Program in India: An Overview.” Journal of Microfinance 5 (1): 21–49.Google Scholar
  8. Bell, C. (1990). “Interactions between Institutional and Informal Credit Agencies in Rural India.” The World Bank Economic Review 4 (3): 297–327.CrossRefGoogle Scholar
  9. Bhatt, N. and Thorat, Y. S. P. (2001). “India’s Regional Rural Banks: The Institutional Dimension of Reforms.” Journal of Microfinance 3 (1): 65–94.Google Scholar
  10. Bornstein, D. (1997). The Price of a Dream: The Story of the Grameen Bank. Chicago: University of Chicago.Google Scholar
  11. Bouman, E J. A. and Hospes, O. (eds.) (1994). Financial Landscapes Reconstructed: The Fine Art of Mapping Development. Boulder: Westview Press.Google Scholar
  12. Bouman, F. J. A. with Bastiaansen, R., Van Den Bogaard, H., Gerner, H., Hospes, O., and Kormelink, J. G. (1989). Small, Short, and Unsecured: Informal Rural Finance in India. New York: Oxford University Press.Google Scholar
  13. Chandavarkar, A. (1992). “Of Finance and Development: Neglected and Unsettled Questions,” World Development 20: 133–142.CrossRefGoogle Scholar
  14. Cheng, E. (2003). “Microfinance in Rural China,” in C. Findlay, A. Watson, E. Cheng, and G. Zhu (eds.), Rural Financial Markets in China. Canberra: Asia Pacific Press at the Australia National University, pp. 120–133.Google Scholar
  15. Cheng, E., Findlay, C. and Watson, A. (1998). “ ‘We’re not Financial Organizations!’: Financial Innovation without Regulation in China’s Rural Cooperative Funds,” MOCT-MOST: Economic Policy in Transition Economies 8 (3): 41–55.Google Scholar
  16. China Development Brief (May 1999), 2, 2.Google Scholar
  17. Conroy, J. D. (2000). “People’s Republic of China,” ADB (ed.), The Role of Central Banks in Asia and the Pacific. Manilla: ADB.Google Scholar
  18. Das-Gupta, A., Nayar, C. P. S. and Associates (1989). Urban Informal Credit Markets in India. New Delhi: National Institute of Public Finance and Policy.Google Scholar
  19. Du, X. S. (May 8, 2003). Author’s correspondence.Google Scholar
  20. Du, Z. X. (March 1998). The Dynamics and Impact of the Development of Rural Cooperative Funds (RCFs) in China. Working Paper No. 98/2, Chinese Economies Research Centre, The University of Adelaide.Google Scholar
  21. EDA Rural Systems (1996). India: Micro-finance for the Poor: An Assessment of the Status and Efficacy of Microfinance Institutions and Programmes. Study prepared for the Asian and Pacific Development Centre, Kuala Lumpur.Google Scholar
  22. Evans, P., Reuschemeyer, D., and Skocpol, T. (eds.) (1985). Bringing the State Back In. New York: Cambridge University Press.Google Scholar
  23. Ghate, P. et al. (1992). Informal Finance: Some Findings from Asia. Manila: Asian Development Bank, Oxford University Press.Google Scholar
  24. Hannig, A. and Katimbo-Mugwanya, E. (eds.) (1999). How to Regulate and Supervise Microfinance? Key Issues in an International Perspective. Proceedings of the High-Level Policy Workshop, Kampala.Google Scholar
  25. Hoff, K., Braverman, A., and Stiglitz, J. (eds.) (1993). The Economics of Rural Organization: Theory, Practice, and Policy. New York: Oxford University Press for The World Bank.Google Scholar
  26. Hoff, K. and Stiglitz, J. (1990). “Imperfect Information and Rural Credit Markets: Puzzles and Policy Perspectives.” The World Bank Economic Review 4 (3): 235–250.CrossRefGoogle Scholar
  27. Holcombe, S. (1995). Managing to Empower: The Grameen Bank Experience of Poverty Alleviation. London: Zed Books.Google Scholar
  28. Holz, C. A. (2001). “China’s Monetary Reform: The Counterrevolution from the Countryside.” Journal of Contemporary China 20 (27): 189–217.CrossRefGoogle Scholar
  29. Hsiao, K. H. (1971). Money and Monetary Policy in Communist China. New York: Columbia University Press.Google Scholar
  30. International Fund for Agricultural Development (IFAD) (2001). People’s Republic of China: Thematic Study on Rural Financial Services in China. Rome, Italy. Available at http://www.ifad.org/evaluation/public_html/eksyst/ doc/thematic/pi/cn/cn_ 1. htm#2.
  31. Jones, J. H. M. (1994). “A Changing Financial Landscape in India: Macro-Level and Micro-Level Perspectives,” in F. J. A. Bouman and O. Hospes (eds.), Financial Landscapes Reconstructed: The Fine Art of Mapping Development. Boulder: Westview Press, Ch. 18.Google Scholar
  32. Khandker, S. R., Khalily, B., and Khan, Z. (1995). Grameen Bank: Performance and Sustainability. World Bank Discussion Paper. No. 306, Washington D.C.: The World Bank.Google Scholar
  33. Li, M. Y. (October 2000). “Diandangye: ‘jinni zhaopai’ xiexia qianhou” (Pawnshops: Future After Removing the “Gold Store Sign”) Hexun caijing (Homeway Financial News).Google Scholar
  34. Migdal, J. S., Kohli, A., and Shue, V. (1994). State Power and Social Forces: Domination and Transformation in the Third World. New York: Cambridge University Press.CrossRefGoogle Scholar
  35. Morduch, J. (2000). “The Microfinance Schism,” World Development 28 (4): 617–629.CrossRefGoogle Scholar
  36. Nagarajan, G. and Meyer, R. L. (2000). Rural Financial Markets in Asia: Paradigms, Policies, and Performance. Manilla: ADB.Google Scholar
  37. National Bank for Agriculture and Rural Development (NABARD) (2002). Ten Years of SHG-Bank Linkage (1992–2002). Mumbai: NABARD.Google Scholar
  38. NABARD (2003). Regional Spread of SHGs as on 31 March 2003. Available at http://www.nabard.org/oper/oper.htm.Google Scholar
  39. Nayar, C. P. S. (1992). “Strengths of Informal Financial Institutions: Examples from India,” in D. W. Adams and D. A. Fitchett (eds.), Informal Finance in Low-Income Countries. Boulder: Westview, pp. 199–200.Google Scholar
  40. Otero, M. and Rhyne, E. (eds.) (1994). The New World of Microenterprise Finance. West Hartford, CT: Kumarian Press.Google Scholar
  41. Park, A. (May 1999). “Banking for the Poor,” China Brief II (2): 9–15.Google Scholar
  42. Park, A., Brandt, L., and Giles, J. (2003). “Competition Under Credit Rationing: Theory and Evidence from Rural China.” Journal of Development Economics 71 (2): 463–495.CrossRefGoogle Scholar
  43. Park, A. and Ren, C. (2001). “Microfinance with Chinese Characteristics.” World Development 29 (1): 39–62.CrossRefGoogle Scholar
  44. Patrick, H. T. (1966). “Financial Development and Economic Growth in Developing Countries.” Economic and Cultural Change 14 (2): 174–189.CrossRefGoogle Scholar
  45. People’s Bank of China (PBC) (January 15, 2004 ). “Financial Industry’s Performance was Stable in 2003.” Available online at http://www.pbc.gov.cn.Google Scholar
  46. Press Information Bureau (PIB), Government of India (March 22, 2002). “Expert Group on Nihdis Recommends Continuation of Regulatory Measures.” Available at http://pib.nic.in/archieve/lreleng/lyr2002/rmar2002/22032002/ r22O32O022.htm1.Google Scholar
  47. Reserve Bank of India (RBI) (1954). All-India Credit Survey. Bombay: RBI.Google Scholar
  48. RBI (February 8, 2000 ). All-India Debt and Investment Survey (AIDIS). “1991–92—Incidence of Indebtedness of Households, Part I.” RBI Bulletin. Available at http://www.rbi.org.in.Google Scholar
  49. Rozelle, S., Park, A., Ren, C. and Bezinger, V. (1998). “Targeted Poverty Investments and Economic Growth in China.” World Development 26 (12): 2137–2151.CrossRefGoogle Scholar
  50. Rutherford, S. and Arora, S. S. (1997). City Savers. New Delhi: Department for International Development.Google Scholar
  51. Saich, T. (2000). “Negotiating the State: The Development of Social Organizations in China.” The China Quarterly 161: 124–141.CrossRefGoogle Scholar
  52. Satish, P. (2001). “Institutional Alternatives for the Promotion of Microfinance: Self-Help Groups in India.” Journal of Microfinance 3 (2): 49–74.Google Scholar
  53. Schrader, H. (1994). “Moneylenders and Merchant Bankers in India and Indonesia,” in E J. A. Bouman and O. Hospes (eds.), Financial Landscapes Reconstructed: The Fine Art of Mapping Development. Boulder: Westview Press, pp. 341–355.Google Scholar
  54. Selden, M. and Perry, E. (eds.) (2000). Chinese Society: Conflict, Change, and Resistance. London: Routledge.Google Scholar
  55. Sinha, S. (2000). “India.” Asian Development Bank (ed.), The Role of Central Banks in Microfinance in Asia and the Pacific: Country Studies, Vol.2. Manilla: ADB, pp. 61–89.Google Scholar
  56. Swain, R. B. (2002). “Credit Rationing in Rural India.” Journal of Economic Development 27 (2): 1–20.Google Scholar
  57. Tsai, K. S. (2000). “Banquet Banking: Rotating Savings and Credit Associations in South China.” The China Quarterly 161: 143–170.CrossRefGoogle Scholar
  58. Tsai, K. S. (2002). Back-Alley Banking: Private Entrepreneurs in China. Ithaca: Cornell University Press.Google Scholar
  59. Tsai, L. L. (2002). “Cadres, Temple and Lineage Institutions.” The China Journal 48: 1–27.CrossRefGoogle Scholar
  60. Tsien, S. (2001). “International Projects Left in the Lurch as Government Weighs In.” China Development Brief 4: 1.Google Scholar
  61. Unger, J. (2002). The Transformation of Rural China. Armonk: M.E. Sharpe.Google Scholar
  62. Walder, A. and Oi, J. (eds.) (1999). Property Rights and Economic Reform in China. Stanford: Stanford University Press.Google Scholar
  63. Watson, A. (2003). “Financing Farmers: The Reform of Rural Credit Cooperatives and Provision of Financial Services to Farmers,” in C. Findlay, A. Watson, C. Enjiang, and Z. Gang (eds.), Rural Financial Markets in China. Canberra: Asia Pacific Press at The Australia National University, pp. 63–88.Google Scholar
  64. Whiting, S. (2001). Power and Wealth in Rural China: The Political Economy of Institutional Change. New York: Cambridge University Press.Google Scholar
  65. Wilson, K. (2002). “The New Microfinance: An Essay on the Self-Help Group Movement in India.” Journal of Microfinance 4 (2): 217–245.Google Scholar
  66. Wu, J. M. (1998). Local Property Rights Regime in Socialist Reform: A Case Study of China’s Informal Privatization. Unpublished doctoral dissertation, Columbia University, New York.Google Scholar
  67. Xin, J. (1993). Diandang shi (History of Pawnshops). Shanghai: Shanghai wenyi chubanshe.Google Scholar
  68. Yaron, J., Benjamin, Jr., M. P., and Piprek, G. L. (1997). Rural Finance: Issues, Design, and Best Practices. Environmentally and Socially Sustainable Development Studies & Monographs Series 13, Washington D.C.: The World Bank.Google Scholar
  69. Zhongguo yinhang Beijing guoji jinrong yanjiusuo (BOC Beijing Institute of International Finance (1993). Zhongguo de jinrong jigou jiqi zhuyao jingying (China’s Financial Institutions and their Primary Management), Beijing: Zhongguo jihua chubanshe.Google Scholar

Copyright information

© Edward Friedman and Bruce Gilley 2005

Authors and Affiliations

  • Kellee S. Tsai

There are no affiliations available

Personalised recommendations