Edited by Sheila Dow, Jesper Jespersen and Geoff Tily
Chapter 6: Shadow banking in emerging economies like India
Financial markets rest on the proliferation of credit, not just within formal, regulated banking channels, but also along unregulated, or shadow, banks. Unlike regular banks, shadow banks function beyond the jurisdiction of the monetary authorities. While decisions to lend and borrow are subject to risks which are systemic and unquantifiable, transactions on the part of the unregulated banks can further exacerbate these risks by encountering new types of risk within informal credit channels. Given that these channels, while providing additional credit, often lead to excess risks for lenders, additional charges are levied on borrowers. Thus there arises a need to enquire into the pattern of these credit channels, especially in developing countries where large sections of borrowers cannot afford the high cost of such loans.
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