Fairness, Reciprocity and Informal Lending in Farming Communities: A Comparative Study of China and India

Though informal lending and borrowing are widely prevalent among close acquaintances in rural areas of developing economies, these informal transactions have not been extensively researched. As it stands, a risk sharing motive has been advanced as an important explanation of such informal exchanges. However, this fails to incorporate social preferences such as altruism, trust, reciprocity and fairness. The primary contribution of this paper is to investigate fairness reciprocity as an important motive underlying informal financial transactions among relatives and friends. Evidence from China and India suggests that fairness can be advanced as an important motive in informal financial transactions