Determinants of Lending-Borrowing in a Credit Rationed Economy

Credit markets worldwide are characterized by the problem of asymmetric information. This asymmetry of information creates a wedge between the intended and the actual amount of lending. The situation is particularly acute in the case of economies that have a low score on economic growth and development. At times, this gets manifested in the form of existence of dualism in credit markets. India being a developing nation faces a similar situation reflecting in the parallel existence of a formal and an informal credit market, none being less in importance than the other.