Do interest rates matter? Credit demand in the Dhaka slums
Abstract“Best practice” in microfinance holds that interest rates should be set at profit-making levels, based on the belief that even poor customers favor access to finance over low fees. Despite this core belief, little direct evidence exists on the price elasticity of credit demand in poor communities. We examine increases in the interest rate on microfinance loans in the slums of Dhaka, Bangladesh. Using unanticipated between-branch variation in prices, we estimate interest elasticities from −0.73 to −1.04, with our preferred estimate being at the upper end of this range. Interest income earned from most borrowers fell, but interest income earned from the largest increased, generating overall profitability at the branch level.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Development Economics.
Volume (Year): 97 (2012)
Issue (Month): 2 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/devec
Microcredit; Interest rates; Loan demand; Credit constraints;
Other versions of this item:
- Dehejia, Rajeev & Montgomery, Heather & Morduch, Jonathan, 2005. "Do interest rates matter? credit demand in the Dhaka Slums," MPRA Paper 33146, University Library of Munich, Germany.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- O13 - Economic Development, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Cull, Robert & Demirguc-Kunt, Asli & Morduch, Jonathan, 2008.
"Microfinance meets the market,"
Policy Research Working Paper Series
4630, The World Bank.
- David B. Gross & Nicholas S. Souleles, 2001.
"Do Liquidity Constraints and Interest Rates Matter for Consumer Behavior? Evidence from Credit Card Data,"
NBER Working Papers
8314, National Bureau of Economic Research, Inc.
- David B. Gross & Nicholas S. Souleles, 2002. "Do Liquidity Constraints And Interest Rates Matter For Consumer Behavior? Evidence From Credit Card Data," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 149-185, February.
- David J. McKenzie & Christopher Woodruff, 2006.
"Do Entry Costs Provide an Empirical Basis for Poverty Traps? Evidence from Mexican Microenterprises,"
Economic Development and Cultural Change,
University of Chicago Press, vol. 55, pages 3-42.
- McKenzie, David J & Woodruff, Christopher, 2006. "Do Entry Costs Provide an Empirical Basis for Poverty Traps? Evidence from Mexican Microenterprises," Economic Development and Cultural Change, University of Chicago Press, vol. 55(1), pages 3-42, October.
- Rob Alessie & Stefan Hochguertel & Guglielmo Weber, 2005.
"Consumer Credit: Evidence From Italian Micro Data,"
Journal of the European Economic Association,
MIT Press, vol. 3(1), pages 144-178, 03.
- Beatriz Armendáriz & Jonathan Morduch, 2010.
"The Economics of Microfinance, Second Edition,"
MIT Press Books,
The MIT Press,
edition 2, volume 1, number 0262513986, January.
- Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," World Bank Economic Review, World Bank Group, vol. 4(3), pages 351-66, September.
- Dean S. Karlan & Jonathan Zinman, 2008.
"Credit Elasticities in Less-Developed Economies: Implications for Microfinance,"
American Economic Review,
American Economic Association, vol. 98(3), pages 1040-68, June.
- Karlan, Dean S. & Zinman, Jonathan, 2007. "Credit Elasticities in Less-Developed Economies: Implications for Microfinance," CEPR Discussion Papers 6071, C.E.P.R. Discussion Papers.
- Morduch, Jonathan, 1999. "The role of subsidies in microfinance: evidence from the Grameen Bank," Journal of Development Economics, Elsevier, vol. 60(1), pages 229-248, October.
- Dean Karlan & Jonathan Zinman, 2004.
"Observing unobservables: Identifying information asymmetries with a consumer credit field experiment,"
Natural Field Experiments
00283, The Field Experiments Website.
- Dean Karlan & Jonathan Zinman, 2009. "Observing Unobservables: Identifying Information Asymmetries With a Consumer Credit Field Experiment," Econometrica, Econometric Society, vol. 77(6), pages 1993-2008, November.
- Dean Karlan & Jonathan Zinman, 2005. "Observing unobservables: identifying information asymmetries with a consumer-credit field experiment," Proceedings 961, Federal Reserve Bank of Chicago.
- Karlan, Dean S. & Zinman, Jonathan, 2007. "Observing Unobservables: Identifying Information Asymmetries with a Consumer Credit Field Experiment," CEPR Discussion Papers 6182, C.E.P.R. Discussion Papers.
- Dean S. Karlan & Jonathan Zinman, 2005. "Observing Unobservables: Identifying Information Asymmetries with a Consumer Credit Field Experiment," Working Papers 911, Economic Growth Center, Yale University.
- Ashok S. Rai & Tomas Sj–str–m, 2004. "Is Grameen Lending Efficient? Repayment Incentives and Insurance in Village Economies," Review of Economic Studies, Wiley Blackwell, vol. 71(1), pages 217-234, 01.
- Suresh de Mel & David McKenzie & Christopher Woodruff, 2008.
"Returns to Capital in Microenterprises: Evidence from a Field Experiment,"
The Quarterly Journal of Economics,
MIT Press, vol. 123(4), pages 1329-1372, November.
- de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2007. "Returns to capital in microenterprises : evidence from a field experiment," Policy Research Working Paper Series 4230, The World Bank.
- de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2007. "Returns to Capital in Microenterprises: Evidence from a Field Experiment," IZA Discussion Papers 2934, Institute for the Study of Labor (IZA).
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.