Coexistence or Conflict in the Indian Financial Markets

Abstract

This paper investigates the relationship between formal and informal financial institutions in India. Traditional views treat formal financial institutions and the informal ones as substitutes, in which case previously credit-constrained entities will replace their informal financing by formal financing eventually as they gain access to bank loans. However, in this paper, I take a close look at a particular yet critical type of financial institutions, namely the bidding ROSCAs (Rotating Savings and Credit Associations), and show both theoretically and empirically that formal and informal financial institutions can coexist and benefit from each other. Specifically, I have not found a significant effect of nearby bank openings on ROSCA participation, and the emergence of formal financial institutions significantly reduces the cost of participating in the ROSCAs and lower the amount of default in the ROSCAs as well. Moreover, different types of banks are found to have differential impacts on ROSCAs in terms of participation, winning bids, and the amount of default. Zhaoning (Nancy) Wang Williams College Williamstown, MA 01267 2 Coexistence or Conflict in the Indian Financial Markets

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Cite this paper

@inproceedings{Wang2011CoexistenceOC, title={Coexistence or Conflict in the Indian Financial Markets}, author={Zhaoning Wang and Ashok S. Rai}, year={2011} }