Research Insights: Do Better-Connected Community Members Benefit More from Subsidized Credit?
Peer Reviewed
Date issued
August 2021
Publication
Subject
Credit Market;
Microfinance;
Decentralization;
Informal Credit;
Bank Loan;
Entrepreneurship;
Interest Rate
JEL code
D14 - Household Saving; Personal Finance;
G21 - Banks • Depository Institutions • Micro Finance Institutions • Mortgages;
O12 - Microeconomic Analyses of Economic Development;
O16 - Financial Markets • Saving and Capital Investment • Corporate Finance and Governance;
O17 - Formal and Informal Sectors • Shadow Economy • Institutional Arrangements;
L14 - Transactional Relationships • Contracts and Reputation • Networks;
Z13 - Economic Sociology • Economic Anthropology • Social and Economic Stratification
Country
Thailand
Category
Catalogs and Brochures
More powerful and less productive households, both in terms of wealth and connections, ended up obtaining more credit from a community-based lending program. Informal markets partially attenuated these targeting distortions by redirecting credit from connected to unconnected households, albeit at higher rates. Despite the targeting distortions, a community-based approach may still be more appealing than other centralized criteria to target credit. Eliminating the connection-based advantage may lead to village-level gains in terms of equity and output.
