Munich Personal RePEc Archive

The costs and benefits of microfinance. The market for Dutch East India Company transportbriefen in 18th century Amsterdam

Malinowski, Mikołaj (2012): The costs and benefits of microfinance. The market for Dutch East India Company transportbriefen in 18th century Amsterdam. Published in: Social and Economic History Annals , Vol. 1, No. 72 (2012): pp. 15-44.


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Transport-letters became a popular financial instrument without a use of a physical collateral and financial journalism. How was it possible for a system of salary loans obtained with the trade in the VOC transport-letters based on the intermediation of a secondary market to work sustainably?’. In order to address this issue, several problems need to be investigated. The first sub-question is: ’how was there a primary market for these instruments possible, i.e. how could they create a credible commitment in the eyes of any buyer of a transport-letter? The second sub-question is: ‘how were the asymmetries of information overcome in the secondary market?’. The third sub-question that needs to be answered is about the long-term sustainability of the system: ‘how could the buyers, given the lack of a relevant financial journalism, assess the risk correctly and purchase the instruments at the right price?’. Had it been different, the system would have collapsed as the buyers would have gone bankrupt or the sailors would have not obtained credit at such a high expense. There are many ideas grouped around contract theory and information economics that provide theoretical insights as to how such a system could exist. According to Avner Greif, ‘a possibility of an ex-ante commitment to being able and willing to fulfil contractual obligations ex-post’ is a precondition for any deal to be signed. In his view, institutional developments can explain changes in the markets. This is because they have the power to mitigate the risks and allow debtors to make a credible commitment as perceived by the always sceptical creditors. This article argues that the instrument worked despite the above mentioned problems because: (1) there were institutions mitigating the possible asymmetries of information and risks, allowing the employees to make a credible commitment, as well as allowing the traders to exchange the transport-letters; (2) due to specialisation of the buyers of the transport-letters and their domination in the market, the system was sustainable; despite the lack of financial journalism providing them with a ready information, large portfolios allowed lenders to gain knowledge and assess the risk correctly.

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