The use of village agents in rural credit delivery
- 1 December 1996
- journal article
- research article
- Published by Taylor & Francis in The Journal of Development Studies
- Vol. 33 (2) , 188-209
- https://doi.org/10.1080/00220389608422462
Abstract
Using a simple principal‐agent model this article examines the incentive problems that arise when a formal financial institution (such as a rural bank) utilises a member of the rural community to act as an agent in screening potential borrowers and collecting repayment. Optimal compensation schemes are derived for the agent and their implications are discussed. In addition, I show that the norms and rules that govern village life may aid the financial institution by helping to constrain possible strategic behaviour by the agent.Keywords
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