ECN 503 - Midterm 2 || A Verified A+ Pass.
Non-market institutions correct answers -exist in low income areas
-make little use of formal legal system
-based on convention, tradition
-often not anonymous
Advantages of non-market institutions in enforcing contracts correct answers - relies on social
norms
(kinship and regional ties work as enforcement devices)
Examples of non-market institutions correct answers - group lending
- credit cooperatives
- rotating savings and credit associations
How to protect against risk of fluctuating income? correct answers - savings
or
- diversyfying sources of income
What is the pattern of savings for the poor? correct answers save in periods when income is high,
draw on savings when times are low
Definition of "Peer Monitoring" correct answers individuals who interact frequently tend to
know each other well; greater ability to monitor each other than formal financial institution can
What results in lower variation in income: no insurance or mutual insurance correct answers
mutual insurance
When is Peer Monitoring used? correct answers group lending & credit cooperatives
Group Lending correct answers Loan given to a group rather than a single borrow
(based on joint liability)
Example of Group Lending correct answers Grameen Bank
- located in Bangladesh
-founded by economist Muhammad Yunus (Nobel Peace Prize 2006)
Definition of "Credit Cooperatives" correct answers another institution that uses local
information and enforcement
credit cooperatives borrow from a bank or gov't and distribute funds among their members of
loans
Do credit cooperatives work? correct answers worked well in Germany in 19th century
, didn't work well when applied to other countries (i.e. Ireland)
Non-market institution: "Rotating savings and credit associations" correct answers make use of
local information and enforcement
a group of individuals gets together periodically, allocates a pot of funds to one group member -
process continues until each member has won the pot once
enhances household capital accumulation of indivisible items
Examples of "rotating savings and credit associations" correct answers Chit funds (India)
Hui (Taiwan)
Tontines (Senegal)
Aye (Korea)
Insurance type in northern Nigeria correct answers Credit
Nigerian religion and how it relates to credit as insurance correct answers Islamic
- islamic law condemns charging interest on loans
-usury or fixed repayment periods are generally prohibited
Agriculture in Nigeria subject to: correct answers - seasonal fluctuations
- random shocks
- uncertain and irregular income flows
- people need to borrow and lend in times of distress
What does the disincentive to lend come from in Nigeria correct answers Islamic religion:
structure against charging interest
definition: "Consumption Smoothing" correct answers maintain similar levels of consumption
under both good and bad outcomes
rural Nigeria credit market correct answers no formal credit market (i.e. bank)
- in form of inter household insurance against income shortfalls
90% of Nigerian households are:
50% of Nigerian households took part in both: correct answers - borrowers or lenders annually
- lending and borrowing in one year
Moral Hazard correct answers two contracting parties, outcome depends on actions of one party,
these actions aren't observed by the other party
Credit market (mutual insurance)? correct answers two parties: lender and borrower
Non-market institutions correct answers -exist in low income areas
-make little use of formal legal system
-based on convention, tradition
-often not anonymous
Advantages of non-market institutions in enforcing contracts correct answers - relies on social
norms
(kinship and regional ties work as enforcement devices)
Examples of non-market institutions correct answers - group lending
- credit cooperatives
- rotating savings and credit associations
How to protect against risk of fluctuating income? correct answers - savings
or
- diversyfying sources of income
What is the pattern of savings for the poor? correct answers save in periods when income is high,
draw on savings when times are low
Definition of "Peer Monitoring" correct answers individuals who interact frequently tend to
know each other well; greater ability to monitor each other than formal financial institution can
What results in lower variation in income: no insurance or mutual insurance correct answers
mutual insurance
When is Peer Monitoring used? correct answers group lending & credit cooperatives
Group Lending correct answers Loan given to a group rather than a single borrow
(based on joint liability)
Example of Group Lending correct answers Grameen Bank
- located in Bangladesh
-founded by economist Muhammad Yunus (Nobel Peace Prize 2006)
Definition of "Credit Cooperatives" correct answers another institution that uses local
information and enforcement
credit cooperatives borrow from a bank or gov't and distribute funds among their members of
loans
Do credit cooperatives work? correct answers worked well in Germany in 19th century
, didn't work well when applied to other countries (i.e. Ireland)
Non-market institution: "Rotating savings and credit associations" correct answers make use of
local information and enforcement
a group of individuals gets together periodically, allocates a pot of funds to one group member -
process continues until each member has won the pot once
enhances household capital accumulation of indivisible items
Examples of "rotating savings and credit associations" correct answers Chit funds (India)
Hui (Taiwan)
Tontines (Senegal)
Aye (Korea)
Insurance type in northern Nigeria correct answers Credit
Nigerian religion and how it relates to credit as insurance correct answers Islamic
- islamic law condemns charging interest on loans
-usury or fixed repayment periods are generally prohibited
Agriculture in Nigeria subject to: correct answers - seasonal fluctuations
- random shocks
- uncertain and irregular income flows
- people need to borrow and lend in times of distress
What does the disincentive to lend come from in Nigeria correct answers Islamic religion:
structure against charging interest
definition: "Consumption Smoothing" correct answers maintain similar levels of consumption
under both good and bad outcomes
rural Nigeria credit market correct answers no formal credit market (i.e. bank)
- in form of inter household insurance against income shortfalls
90% of Nigerian households are:
50% of Nigerian households took part in both: correct answers - borrowers or lenders annually
- lending and borrowing in one year
Moral Hazard correct answers two contracting parties, outcome depends on actions of one party,
these actions aren't observed by the other party
Credit market (mutual insurance)? correct answers two parties: lender and borrower
