Abstract — This paper critically reviews proposals for banks and moneylenders to link together in disbursing credit to rural areas
of developing countries.
The linkages suggest that banks should compensate moneylenders according to the moneylenders ’ opportunity costs and information contribution. These mechanisms’ appeal lies in their self-equilibrating and self-sustaining character.
With these attractive features, bank-moneylender linkages can emerge as a serious alternative to group lending-based microfinance.
The paper also provides evidence-primarily from Indonesia on incentives similar to those suggested by the theoretical models. It concludes that with the appropriate regulation of informal lenders and with incentives provided to commercial banks, linkages
provide an unexplored potential.
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Note the study is from the year 2004.
