Giving credit to the microlenders. Formal microlending, credit constraints and adverse selection: a case study of shrimp farmers in Bangladesh
AbstractSmallholder farmers have long been denied access to formal credit, largely because of the high administrative fees associated with loans. A possible solution to this problem, which has become increasingly popular, is the use of microcredit financing, where innovative means of securing the loans, such as peer monitoring, are used. This paper examines the effectiveness of formal microcredit schemes as compared to the traditional informal credit sources in a rural shrimp farming district of Bangladesh. We compare the two types of credit by studying the technical and allocative efficiencies of the two groups of borrowers. The findings suggest that farmers using both types of microcredit have difficulty accessing credit, often over-utilising labour in order to reduce the need for inputs that require cash at the beginning of the season, creating inefficiencies in production. However, the informal lenders, with their closer ties to individual farmers, were more successful in identifying those small-holders most likely to make the best use of the borrowed funds. Thus, although formal microcredit schemes do not impose the high administrative fees of traditional formal lending, they do not necessarily solve the problem of how to select successful borrowers.
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Bibliographic InfoPaper provided by International Institute for Environment and Development, Environmental Economics Programme in its series Discussion Papers with number 37921.
Date of creation: Jan 2008
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Economics; Bangladesh; Shrimp Farming; Fisheries; Community/Rural/Urban Development; Crop Production/Industries; Environmental Economics and Policy; Financial Economics; Livestock Production/Industries;
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