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American Economic Journal: Applied Economics: Vol. 1 No. 3 (July 2009)

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Legal Reform and Loan Repayment: The Microeconomic Impact of Debt Recovery Tribunals in India

Article Citation

Visaria, Sujata. 2009. "Legal Reform and Loan Repayment: The Microeconomic Impact of Debt Recovery Tribunals in India." American Economic Journal: Applied Economics, 1(3): 59-81.

DOI: 10.1257/app.1.3.59

Abstract

In 1993, the Indian government introduced debt recovery tribunals to speed up the resolution of debt recovery claims larger than a threshold. This paper exploits the staggered introduction of tribunals across states and the link between overdues and claim size to implement a differences-in-differences strategy on project loan data. It finds that the tribunals reduced delinquency for the average loan by 28 percent. They also lowered the interest rates charged on larger loans, holding constant borrower quality. This suggests that the speedier processing of debt recovery suits can lower the cost of credit. (JEL G21, K41, O16, O17)

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Authors

Visaria, Sujata (Boston U)

JEL Classifications

G21: Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
K41: Litigation Process
O16: Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
O17: Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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