Interest Rate Determination in Underdeveloped Rural Areas

Abstract

Abstract Interest rates for rural and unorganized money markets in third world societies have not been extensively studied. This paper uses a comprehensive review of agricultural credit literature to explore the relationships between the costs of extending credit, amounts loaned, and the borrower's ability to absorb further capital. High costs in administering small loans and resistance to repay suggest the convenience of linkages between lending agencies and marketing boards for the crops upon which loans are made. Village moneylenders‐cum‐traders may be able to operate more efficiently than public agencies, particularly when trained staff are in short supply.

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