Impacts of caste, risk, and time preference on borrowing behaviour: A case study in West Bengal, India

Abstract

The recent development of microfinance institutions has enabled rural households to borrow money much easier than before. However, it is still difficult for the poorest households to have access loan from profit-seeking microfinance institutions and formal financial institutions due to the smallness of their demanded loan, and the higher possibility of default by poor borrower (Robert et al. 2009; Fujita and Sato 2011; Karlan and Gine 2011). Therefore, the poorest households tend to borrow money from relatives and friends who usually do not require interest and due date, or informal money lenders who usually require the higher interest rate than formal financial institutions. Particularly, when they need loan in the case that they face the exogenous shocks such as unpredictable crop failure, illness, injury and death of family members, marriage of family members, they often rely on 'quasi-credit' (Fafchamps 1999) that is mutually provided between relatives and friends (Chap. 8 in Bardhan and Udry 2001; Fafchamps and Lund 2003; Fafchamps and Gubert 2007; Foster and Rosenzweig 2001; Gine and Yang 2009; De Weerdt and Dercon 2006). The market situation where.