Asymmetry in Information and Varying Rates of Interest

This paper examines the nature and extent of household indebtedness in West Bengal, focusing on households’ access to credit and factors influencing interest rate determination in informal credit markets. As far as accessibility is concerned, it finds that the urban poor face greater problems than their rural counterparts in accessing formal and informal sources of credit. Using an ordered logit model it shows how information and monitoring opportunities play a critical role in arriving at a rate of interest for the lender.