The Review of Economics and Statistics Vol. 107 No. 1 2025
Borrowing in an Illegal Market: Contracting with Loan Sharks
Abstract
Using over 11,000 unlicensed loans to over 1,000 borrowers in Singapore, we provide basic information about an understudied market: illegal moneylending. Borrowers and lenders interact frequently and rely primarily on relational contracts to enforce their agreements. Borrowers have high discount rates, often have gambling and/or substance abuse problems, and often repay late. While lenders sometimes resort to nonfinancial punishments, the primary cost of late repayment is the compounding of a very high interest rate. Consistent with our view that lenders cannot extract all surplus, a crackdown on illegal lending raised interest rates and lowered the size of loans.
- DOI
- 10.1162/rest_a_01246
- Volume
- 107
- Issue
- 1
- Pages
- 269-278
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref