The competitive advantage of moneylenders over banks in rural Palestine

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Abstract

According to the British Government in Mandate Palestine, the tendency of the fallahin (Arab peasants) to "strategic default" and the monopolistic power of local moneylenders led to high interest lending in rural areas. The government sought to remedy this by assisting banks in collecting bad debts, by guaranteeing some bank loans and by imposing the maximum legal interest rate. However, the colonial perception was incorrect. Defaults were usually "involuntary" as a result of natural and occasionally man-made hazards (thus creating a high interest rate environment), and the moneylending market was "contestable." In such an environment, despite government assistance, moneylenders had a comparative advantage over banks. They were usually merchants who could easily utilise collateral on loans (crops and lands); they ignored the law of maximum interest rate and they had good information about borrowers. For these reasons moneylenders remained the main source of credit for the fallahin.

Original languageEnglish
Pages (from-to)1-39
Number of pages39
JournalJournal of the Economic and Social History of the Orient
Volume48
Issue number1
DOIs
StatePublished - 1 Jan 2005

Keywords

  • CREDIT COOPERATIVE SOCIETIES
  • FALLAHIN
  • INFORMAL AND FORMAL CREDIT
  • MERCHANT-MONEYLENDERS
  • STRATEGIC DEFAULT

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