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Microfinance and Investment: a Comparison with Bank and Informal Lending

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  • Lucia Dalla Pellegrina
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    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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    File URL: http://www.statistica.unimib.it/utenti/WorkingPapers/WorkingPapers/20070401.pdf
    File Function: Revised version, 14 April 2006
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    Bibliographic Info

    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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    Keywords: Microfnance; Banks; Informal lending; Investment.;

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