... The whole principle of a credit market relies upon the fact the economic agents who are advanced loans will be able to repay the loan at some point in the future, as well as the interest rate payments that are due in the interim. There are two main problems with the distribution of credit, which arise from the fear that a loan will not be repaid i.e. the borrower will default upon the loan. The first problem is that of asymmetric information, in that it is very difficult for the lender to monitor / regulate what the borrower uses a loan for. For example a loan may be used to finance present consumption and hence will not have the resources in the future and must default. This type of default is known as involuntary default. The second problem is that if there is not a comprehensive and powerful legal system ...

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