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Can microfinance lending crowd out informal lenders? Evidence from the Philippines

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  • Cherry Wyle G. Layaoen
  • Kazushi Takahashi

Abstract

This study examines whether microfinance lending increases or decreases the likelihood and amount of credit that households demand from informal lenders. Multivariate probit and seemingly unrelated regression models are applied using nationally representative data collected in the Philippines. The estimation results indicate that microfinance ‘crowds out’ informal lending from both moneylenders and relatives and friends. Moreover, households with microfinance loans are less likely to borrow from other formal financial institutions. These results highlight the importance of developing a well‐tailored microfinance scheme that reaches the entire population in order to achieve financial inclusion.

Suggested Citation

  • Cherry Wyle G. Layaoen & Kazushi Takahashi, 2022. "Can microfinance lending crowd out informal lenders? Evidence from the Philippines," Journal of International Development, John Wiley & Sons, Ltd., vol. 34(2), pages 379-414, March.
    • Handle: RePEc:wly:jintdv:v:34:y:2022:i:2:p:379-414
    DOI: 10.1002/jid.3604
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