Credit Markets in Northern Nigeria: Credit as Insurance in a Rural Economy |
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| Authors: | Udry Christopher |
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| Institution: | The author is a professor of economics at Northwestern University. He is grateful to Kaushik Basu, Robert Evenson, Karla Hoff, Barbara O'Brien, Dayo Phillip, T. N. Srinivasan, John Strauss, Duncan Thomas, and three anonymous referees for their comments and advice. He received valuable advice from the members and chairman of the Department of Agricultural Economics and Rural Sociology, Ahmadu Bello University, where he was a visiting Research Fellow. This material is based upon work supported by the National Science Foundation (grant SES-8618906), the Social Science Research Council, the Fulbright-Hays Research Abroad program, and the Yale Center for International and Area Studies. |
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| Abstract: | This article addresses the issues of incomplete markets andimperfect information in the context of credit markets in ruralnorthern Nigeria. In much recent theoretical literature, theproblems of moral hazard and adverse selection are assumed tobe decisive for the organization of agrarian institutions. Incontrast, it is found that in the four villages surveyed credittransactions take advantage of the free flow of informationwithin rural communities. Information asymmetries between borrowerand lender are unimportant, and their institutional consequences—theuse of collateral and interlinked contracts—are absent.Credit transactions play a direct role in pooling risk betweenhouseholds through the use of contracts in which the repaymentowed by the borrower depends on the realization of random productionshocks by both the borrower and the lender. |
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