Determinants of credit rationing: a study of informal lenders and formal credit groups in Madagascar
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Previous research on the determinants of credit rationing exclusively focused on the
behavior of formal lenders who contract directly with an individual borrower. Based on a
household survey in Madagascar, this paper presents an analysis of credit rationing behavior
by informal lenders and by members of community-based groups that allocate formal group
loans among themselves. The results show that group members obtain and use locally
available information about the applicant's creditworthiness in much the same way that
informal lenders do. This paper therefore empirically confirms theoretical arguments made
that community-based groups have an information advantage over distant formal bank
agents.