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Relationship Lending in Microcredit: Evidence from Bangladesh

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  • Sugato Chakravarty

    ()
    (Purdue University)

  • Abu Zafar Shahriar

    (Purdue University, West Lafayette, Indiana)

Abstract

We use primary data compiled from the field in 34 randomly selected villages in Bangladesh to examine the role of bank-borrower relationships in the application and approval stages of microcredit. We find evidence that potential borrowers who have maintained membership for a long time, and who have non-mandatory saving accounts and a successful track record of previous loans are more likely to apply, and be approved, for individual as well as group loans. Having a relationship with multiple lenders increases the probability of applying for a loan but reduces the probability of being approved for it. We also provide evidence that it is the large (rather than small) microfinance institutions who rely more on relationship metrics.

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File URL: ftp://128.210.123.107/csr/wpaper/Microcredit_Apr_10.pdf
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Bibliographic Info

Paper provided by Purdue University, Department of Consumer Sciences in its series Working Papers with number 1005.

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Length: 38 pages
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:csr:wpaper:1005

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Keywords: Microcredit; relationships; credit constraint; adverse selection; peer monitoring;

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  1. Demirguc-Kunt, Asli & Love, Inessa & Maksimovic, Vojislav, 2006. "Business environment and the incorporation decision," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 2967-2993, November.
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