ECN 503 Lecture Notes - Lecture 10: Risk Neutral, Moral Hazard, Vespa Px
9 May 2016
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Christopher udry has extensively worked on credit, risk and insurance in nigeria. This is a summary of some of his works from chapter 15 of development economics by debraj ray. Udry (1993,1994): rich empirical illustration of credit as insurance in northern nigeria. Islamic law condemns charging interest for loans; usury or fixed repayment periods are general prohibited. Agriculture in nigeria subject to: seasonal fluctuations, random shocks (droughts, crop disease etc) People need to borrow and lend in times of distress. Borrowing of capital: investment ( specific project: small business, or education or acquiring skill) Problem of the poor: don"t have access to formal or institutional credit. Banks/financial institutions: they don"t have access to credit because they do not have collateral ( security) Village money lenders (loans across households) ( lah is a study in africa) Interest rate observed is often high in many cases. In the presence of high risk of default, high interest rates compensate for the risk.
