DETERMINANTS OF CREDIT RATIONING - A STUDY OF INFORMAL LENDERS AND FORMAL CREDIT GROUPS IN MADAGASCAR

Previous research on the determinants of credit rationing focused exclusively on the behavior of formal lenders who contract directly with an individual borrower. Based on survey data from Madagascar, this paper presents an analysis of credit rationing by informal lenders and by members of community-based groups that allocate formal group loans among themselves. The results show that group members are able to obtain and to use locally available information about the applicant's creditworthiness in much the same way as informal lenders do. Both types of lenders use the applicant's debt-servicing obligations and income as the main criteria for credit rationing. This paper therefore empirically confirms theoretical arguments that community-based groups have an information advantage over distant formal bank agents.