Microfinance and Investment: a Comparison with Bank and Informal Lending

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Microfinance and Investment: a Comparison with Bank and Informal Lending

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Lucia Dalla Pellegrina

Abstract

Using data from a World Bank survey carried out in Bangladesh during the period 1991-1992, we compare the impact of microfinance programs and other types of credit on agricultural investment. After controlling for several measurable determinants of credit agreements, such as interest rates and collateral, estimates still show that microfinance programs are more likely to increase variable input expenditure than informal and bank credit are able to do. This provides evidence that microfinance incentive devices (joint responsibility, peer monitoring, social sanctions, future credit denial in case of default, etc.), perhaps together with other services associated with programs, are effective in order to promote a productive use of funds.

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Paper provided by Università degli Studi di Milano-Bicocca, Dipartimento di Statistica in its series Working Papers with number 20070401.

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Length: 41 pages
Date of creation: Apr 2007
Date of revision: Apr 2007
Handle: RePEc:mis:wpaper:20070401

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Find related papers by JEL classification:
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

This paper has been announced in the following NEP Reports:

NEP-ALL-2007-04-21 (All new papers)
NEP-BAN-2007-04-21 (Banking)
NEP-DEV-2007-04-21 (Development)
NEP-MFD-2007-04-21 (Microfinance)

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