Augendra Bhukuth,

Ipag Business School and ITSMI Ecole de Management,

Paris, France,

E-mail: augendra@gmail.com

AN ANALYSIS OF SOCIAL PROXIMITY AND INTEREST RATE IN RURAL SOUTH INDIA

Jérôme Ballet,

Université de Bordeaux,

Bordeaux, France,

E-mail: jballetfr@yahoo.fr

Katia Radja,

Université de Versailles-St Quentin en Yvelines, CEARC,

Université Paris Saclay,

Versailles, France,

E-mail: katia.radja@uvsq.fr

Abstract. In this article we present the role of social proximity in the formation of the interest rate in the informal credit market in the state of Tamil Nadu, India. This paper is unique in the sense that it deals with social proximity and the formation of interest rate. If a lot of articles deal with the interest rate and social capital, none of them have attempted to link the two variables. A qualitative and quantitative survey was conducted on debt bondage in 2003-2004. The impact of social proximity defined as strong and weak is captured by a simple regression model. We show that a strong social proximity has a negative impact on the interest rate. Furthermore, the frequency of transactions has a positive impact on the interest rate, which means that asymmetrical information does not play a central role in our study. We then explain the relation between social proximity and interest rate by using the concept of rights and obligations.

Received: September, 2017

1st Revision: December, 2017

Accepted: February, 2018

DOI: 10.14254/2071-789X.2018/11-1/10

JEL Classification: R10, I32

Keywords: India; Social proximity; Social Capital; Interest rate; Poverty Indebtedness; Seasonal migrants