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Geographical Distance and Moral Hazard in Microcredit: Evidence from Colombia

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  • Andrea Filippo Presbitero

    (Universit… Politecnica delle Marche, MoFiR)

  • Roberta Rabellotti

    (Universit… di Pavia, Department of Political and Social Sciences)

Abstract

Recent years have seen an intense and critical debate about the impact of microcredit on entrepreneurial activities and poor households' welfare. This paper suggests that information asymmetries in the ex-post loan arrangement between the microfinance institution (MFI) and local borrowers could partially explain the limited impact of microcredit. The physical distance separating borrowers from the MFI could be considered a proxy of agency costs, making monitoring more costly and moral hazard easier. The estimation of the effect of distance on the borrower's self-assessed outcome of a microcredit project in Colombia confirms the presence of moral hazard in the microcredit market, with agency costs increasing with geographical distance.

Suggested Citation

  • Andrea Filippo Presbitero & Roberta Rabellotti, 2012. "Geographical Distance and Moral Hazard in Microcredit: Evidence from Colombia," Mo.Fi.R. Working Papers 58, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    • Handle: RePEc:anc:wmofir:58
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    Cited by:

    1. Nargiza Alimukhamedova & Randall Filer & Jan Hanousek, 2015. "The Importance of Geographic Access for the Impact of Microfinance," CESifo Working Paper Series 5433, CESifo.
    2. Ohnsorge, Franziska & Capasso, Salvatore & Yu, Shu, 2022. "From Financial Development to Informality: A Causal Link," CEPR Discussion Papers 17565, C.E.P.R. Discussion Papers.
    3. JJ. Cao-Alvira & LG Deidda, 2013. "Financial liberalization and the development of microcredit," Working Paper CRENoS 201324, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    4. Cao-Alvira, José J. & Deidda, Luca G., 2020. "Development of bank microcredit," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    5. Castellani, Davide & Afonso, Joana Silva, 2021. "Geographic diversification and credit supply in times of trouble: Evidence from microlending," Journal of Business Research, Elsevier, vol. 132(C), pages 848-859.
    6. Francis Awuku Darko, 2016. "Is there a mission drift in microfinance? Some new empirical evidence from Uganda," Studies in Economics 1603, School of Economics, University of Kent.
    7. Akib Khan & Atonu Rabbani, 2015. "Assessing The Spatial Accessibility Of Microfinance In Northern Bangladesh: A Gis Analysis," Journal of Regional Science, Wiley Blackwell, vol. 55(5), pages 842-870, November.
    8. D’Onofrio, Alexandra & Minetti, Raoul & Murro, Pierluigi, 2019. "Banking development, socioeconomic structure and income inequality," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 428-451.
    9. Nargiza Alimukhamedova & Randall Filer & Jan Hanousek, 2017. "Themed Issue: Cash Transfers and Microfinance," Development Policy Review, Overseas Development Institute, vol. 35(5), pages 645-657, September.
    10. Rafiatul Adlin Hj Mohd Ruslan & Christopher Gan & Baiding Hu & Nguyen Thi Thieu Quang, 2019. "Accessibility to Microcredit by Small- and Medium-Sized Enterprises in Malaysia," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 18(3), pages 287-305, December.
    11. repec:luc:wpaper:18-04 is not listed on IDEAS
    12. Mejía Cubillos, Javier, 2013. "Perfil económico del Eje Cafetero. Un análisis con miras a la competitividad territorial [Economic profile of Eje Cafetero. An analysis towards territorial competitiveness]," MPRA Paper 43873, University Library of Munich, Germany.
    13. Jianwen Li & Jinyan Hu, 2022. "Migrants and default: Evidence from China," International Review of Finance, International Review of Finance Ltd., vol. 22(3), pages 472-505, September.
    14. Pino, Gabriel & Herrera, Rodrigo & Rodríguez, Alejandro, 2019. "Geographical spillovers on the relation between risk-taking and market power in the US banking sector," The North American Journal of Economics and Finance, Elsevier, vol. 47(C), pages 351-364.

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    More about this item

    Keywords

    Colombia; Distance; Microcredit; Relationship Lending;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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