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Information Asymmetry and Trust: A Framework for Studying Micro-Finance in India

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Abstract

The work in the area of microfinance has concentrated on the issue of transaction costs in delivering the financial services to the poor. However, the mechanisms of reducing transaction costs have been mostly in the area of building trusts within local communities and using trust as an effective surrogate for sorting the twin problems of inadequate information and high cost of transactions. The paper presents a theoretical framework to study the field of microfinance from this point of view. There has been significant literature both in Economics as well as in Behavioural Sciences in examining the role of trust in organisational settings. This paper postulates that the element could be extended to networks like self-help groups. Eventually, it tries to identify some thresholds where the concept of trust and social capital can be used as a surrogate to reduce transaction-documentation costs and when the costs become indifferent to the underlying trust in exchanges.

Suggested Citation

  • Sriram M S, 2002. "Information Asymmetry and Trust: A Framework for Studying Micro-Finance in India," IIMA Working Papers WP2002-09-02, Indian Institute of Management Ahmedabad, Research and Publication Department.
    • Handle: RePEc:iim:iimawp:wp00032
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    Cited by:

    1. Amarjit Gill & Harvinder S. Mand & John D. Obradovich & Neil Mathur, 2017. "Influence of meditation on estate planning decisions: evidence from Indian survey data," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 3(1), pages 1-18, December.
    2. Viresh Amin, 2014. "The Role of Trust-Control Mechanisms in Operations Processes: Mitigating Mission Drift in a Microfinance Institution in Gujarat, India," Management Working Papers 7, Birkbeck Department of Management, revised Jun 2014.
    3. Guanghua Han & Ming Dong, 2017. "Sustainable Regulation of Information Sharing with Electronic Data Interchange by a Trust-Embedded Contract," Sustainability, MDPI, vol. 9(6), pages 1-22, June.
    4. Jessica Holmes & Jonathan Isham & Jessica Wasilewski, 2005. "Overcoming Information Asymmetries in Low‐Income Lending: Lessons from the “Working Wheels” Program," Southern Economic Journal, John Wiley & Sons, vol. 72(2), pages 329-351, October.
    5. Sapovadia, Vrajlal, 2003. "Trust – An Essential Element & Pillar of Micro Finance," MPRA Paper 55604, University Library of Munich, Germany, revised 29 Apr 2014.
    6. Disha Bhanot & Varadraj Bapat, 2019. "Contributory factors towards sustainability of bank-linked self-help groups in India," Asia-Pacific Sustainable Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 26(2), pages 25-55, December.
    7. Irene Akuamoah Boateng & Albert Agyei, 2013. "Microfinance in Ghana: Development, Success Factors and Challenges," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 3(4), pages 153-160, October.
    8. Koen Rossel-Cambier, 2011. "Is Combined Microfinance an Instrument to enhance Sustainable Pro-Poor Public Policy Outcomes?," Working Papers CEB 11-013, ULB -- Universite Libre de Bruxelles.
    9. Sriram M S & Upadhyayula, Rajesh, 2002. "The Transformation of Microfinance in India: Experiences, Options and Future," IIMA Working Papers WP2002-12-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
    10. Mari-Liis Kukk & Laivi Laidroo, 2020. "Institutional Drivers of Crowdfunding Volumes," JRFM, MDPI, vol. 13(12), pages 1-28, December.
    11. Parhi Smita & Sriram M S, 2004. "Financial Status of Rural Poor: A Study in Udaipur District," IIMA Working Papers WP2004-02-01, Indian Institute of Management Ahmedabad, Research and Publication Department.

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