Experience of communal conflicts and inter-group lending
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Citation (published version)Raymond Fisman, Vikrant Vig, Arkodipta Sarkar, Janis Skrastins. 2018. "Experience of Communal Conflicts and Inter-group Lending."
We provide micro economic evidence on the link between ethnic frictions and market efficiency, using dyadic data on managers and borrowers from a large Indian bank. Our analysis builds on the idea that exposure to religion-based communal violence may intensify branch managers’ same-group preferences, and thus result in lending decisions that are more sensitive to a borrower’s religion. We find that,in our sample of Hindu loan officers, those with substantial riot exposure prior to joining the bank lend relatively less to Muslim borrowers. Riot-exposed officers’ loans to Muslims are also less likely to default, suggesting that the lower lending rate for Muslims is driven by taste-based discrimination. This bias is persistent across a bank officer’s tenure, suggesting that the economic costs of ethnic conflict are long-lasting, potentially spanning across generations.