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The Effects of Policy Interventions to Limit Illegal Money Lending

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  • Leong, Kaiwen
  • Li, Huailu
  • Pavanini, Nicola
  • Walsh, Christoph

Abstract

We estimate a structural model of borrowing and lending in the illegal money lending market using a unique panel survey of 1,090 borrowers taking out 11,032 loans from loan sharks. We use the model to evaluate the effects of interventions aimed at limiting this market. We find that an enforcement crackdown that occurred during our sample period increased lenders’ unit cost of harassment and interest rates, while lowering volume of loans, lender profits and borrower welfare. Policies removing borrowers in the middle of the repayment ability distribution, reducing gambling or reducing time discounting are also effective at lowering lender profitability.

Suggested Citation

  • Leong, Kaiwen & Li, Huailu & Pavanini, Nicola & Walsh, Christoph, 2022. "The Effects of Policy Interventions to Limit Illegal Money Lending," CEPR Discussion Papers 16779, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16779
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    More about this item

    Keywords

    Illegal moneylending; Loan sharks; Law enforcement; Crime;
    All these keywords.

    JEL classification:

    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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