The market for rough and polished diamonds functions not only as a commodities market but also as an implicit capital market. One possible explanation for the extension of credit by sellers is that sellers typically have better and less expensive access to outside capital than most buyers. Many of the important sellers are also DeBeers sight holders. The fact that a dealer is a sight holder sends a signal to the bank that he is a good credit risk. Banks prefer to lend to sight holders because they need not incur the large cost of valuing gems that they would have to bear if they lent to non-sight holders whose inventories are in a constant state of flux. Lenders can offer lower interest rates to sight holders because they can have greater confidence when they make loans and most monitoring costs are shifted to the cartel.

XREF: Connects to themes of signaling theory in finance and the informational role of institutions (like DeBeers' cartel) in lending markets.

Lisa Bernestein, Opting out of the Legal Sys…, loc. 118