Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/223802
Authors: 
Lang, Kevin
Leong, Kaiwen
Li, Huailu
Xu, Haibo
Year of Publication: 
2020
Series/Report no.: 
IZA Discussion Papers No. 13360
Abstract: 
We study roughly 11,000 loans from unlicensed moneylenders to over 1,000 borrowers in Singapore and provide basic information about this understudied market. Borrowers frequently expect to repay late. While lenders do rely on additional punishments to enforce loans, the primary cost of not repaying on time is compounding of a very high interest rate. We develop a very simple model of the relational contract between loan sharks and borrowers and use it to predict the effect of a crackdown on illegal moneylending. Consistent with our model, the crackdown raised the interest rate and lowered the size of loans.
Subjects: 
illegal lending
enforcement
relational contract
JEL: 
K42
L14
Document Type: 
Working Paper

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