© 1990 International Bank for Reconstruction and Development / The World Bank
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Credit Markets in Northern Nigeria: Credit as Insurance in a Rural Economy
The author is a professor of economics at Northwestern University. He is grateful to Kaushik Basu, Robert Evenson, Karla Hoff, Barbara O'Brien, Dayo Phillip, T. N. Srinivasan, John Strauss, Duncan Thomas, and three anonymous referees for their comments and advice. He received valuable advice from the members and chairman of the Department of Agricultural Economics and Rural Sociology, Ahmadu Bello University, where he was a visiting Research Fellow. This material is based upon work supported by the National Science Foundation (grant SES-8618906), the Social Science Research Council, the Fulbright-Hays Research Abroad program, and the Yale Center for International and Area Studies.
This article addresses the issues of incomplete markets and imperfect information in the context of credit markets in rural northern Nigeria. In much recent theoretical literature, the problems of moral hazard and adverse selection are assumed to be decisive for the organization of agrarian institutions. In contrast, it is found that in the four villages surveyed credit transactions take advantage of the free flow of information within rural communities. Information asymmetries between borrower and lender are unimportant, and their institutional consequences—the use of collateral and interlinked contracts—are absent. Credit transactions play a direct role in pooling risk between households through the use of contracts in which the repayment owed by the borrower depends on the realization of random production shocks by both the borrower and the lender.
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