Policing Loan Sharks: Evidence from the unlicensed money lending market in Singapore

A joint event between CSEAR and Master of Food and Resource Economics (MFRE).

Using a unique dataset, we study the unlicensed money lending market in Singapore. In this market, borrowers search for loan sharks to borrow from and loan sharks decide how much money to extort from the borrowers. In equilibrium, we observe dispersion over the degree of extortion by different lenders. A sizable number of borrowers are the recurring customers of some loan sharks. Lastly, as search friction increases due to heightened enforcement efforts to arrest unlicensed moneylenders, it becomes increasingly difficult for borrowers to find loan sharks in the market. Loan sharks who previously extorted heavily from borrowers and thus had difficulty retaining customers are now finding it easier to do so. Finally, we find that increasing enforcement efforts by the authorities, on average, have the following effects: The initial interest rate attached to the loan agreed upon by both the lender and the borrowers increases, the loan amount that the lender is willing to give out to the borrower decreases, the amount of money the lender extorts from the borrower increases and harassment activities by the lenders directed against the borrower fell in terms of both severity and frequency.

Speakers: Kaiwen Leong (Nanyang Technological University, Singapore) and Haibo Xu (Fudan University, Shanghai)

Kaiwen Leong is an Assistant Professor at the Nanyang Technological University. He received his PhD degree in Economics from Princeton University. Before joining academia, he spent several years working as a volunteer helping ex-offenders rebuild their lives. His research interests lie in the underground economy, labor economics and microeconomics. He has published papers in the Economic Journal, the journal of institutional and theoretical economics and Economic Letters.

Haibo Xu is an Assistant Professor at the School of Economics, Fudan University. He received his PhD degree in Economics from Washington University in St. Louis. His research focuses on Game Theory, Contract Theory and Corporate Finance, and he is now particularly interested in the economic and social aspects of how participants of underground economy make decisions and interact with others.

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