Economics%20116%20-%20Lecture%2015%20-%20Final

Economics%20116%20-%20Lecture%2015%20-%20Final - Economics...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Economics 116: Economic Development UC San Diego, Spring 2009 Prof. Karthik Muralidharan Department of Economics Lecture 15
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Administrative Stuff Midterm Problem Set 3 Office Hours Tomorrow: 4-5pm Thursday: 3:45 – 4:45pm No lunch this week
Background image of page 2
Lecture Outline (5/14/09) Finance and Development Microfinance
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
The Role of Finance in Development Consider an entrepreneur (Fred) who has a new business idea (a more efficient truck) He is confident that if he produces his new truck, he will be able to capture a large enough market share to be highly profitable (i.e. a positive NPV investment) But, production requires upfront expenditure Factory, raw materials, etc (Capital) Management, workers, etc (Labor) Typically has to be paid before you can sell your product Two types of capital needed Investment capital Working capital
Background image of page 4
Financing Options for Fred Can use his own savings May not be enough May not want to tie up all his savings in this one project Liquidity; Risk Can get money from friends and family May not be enough of them May not be able to evaluate viability of business Very costly and also time consuming to collect funds from individual savers But there are lots of people with surplus savings and no project in mind that will generate returns as high as Fred’s They will be happy to loan money to Fred, but can’t find him!
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
The Role of Financial Intermediaries Go to a bank and get a loan! The bank collects deposits from savers and makes loans to entrepreneurs/businesses/consumers Can invest in capacity to conduct “due diligence” on the viability of Fred’s (and others’) business ideas The bank acts as a financial intermediary by helping to direct savings to high productivity investments But, the bank may not make the loan. Why? Too risky – not enough collateral
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 19

Economics%20116%20-%20Lecture%2015%20-%20Final - Economics...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online