Presidency University Distinguished Fellow
Nagpurnanand R. Prabhala, Professor of Finance at University of Maryland and Chief Mentor and Head of Research, CAFRAL, Reserve Bank of India, Mumbai will deliver a talk on Directed Lending Programs and Growth
Abstract: Firms and individuals in emerging markets face significant financing constraints, especially small firms and marginal borrowers in the household sector. A regulatory response of choice has been to establish directed lending programs in which banks are required to meet lending quotas to disadvantaged sectors. We illustrate negative side-effects of such programs using two examples drawn from India. Exploiting discontinuities in program eligibility, we show that a small-firm lending program designed to help small enterprises actually slows firm growth. An agricultural lending program has little direct influence on agricultural productivity. We discuss the policy implications and argue that there may be no easy choices.