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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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    1. Bhaduri, Amit, 1977. "On the Formation of Usurious Interest Rates in Backward Agriculture," Cambridge Journal of Economics, Oxford University Press, vol. 1(4), pages 341-52, December.
    2. Besley, T. & Coate, S., 1991. "Group Lending, Repayment Incentives And Social Collateral," Papers 152, Princeton, Woodrow Wilson School - Development Studies.
    3. Timberg, Thomas A & Aiyar, C V, 1984. "Informal Credit Markets in India," Economic Development and Cultural Change, University of Chicago Press, vol. 33(1), pages 43-59, October.
    4. Guiso, Luigi & Jappelli, Tullio, 2002. "Private Transfers, Borrowing Constraints and the Timing of Homeownership," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 315-39, May.
    5. Lawrance, Emily C, 1991. "Poverty and the Rate of Time Preference: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 54-77, February.
    6. Heckman, James J, 1990. "Varieties of Selection Bias," American Economic Review, American Economic Association, vol. 80(2), pages 313-18, May.
    7. Rudolph C. Blitz & Millard F. Long, 1965. "The Economics of Usury Regulation," Journal of Political Economy, University of Chicago Press, vol. 73, pages 608.
    8. Udry, Christopher, 1994. "Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 495-526, July.
    9. Basu, Kaushik, 1984. "Implicit Interest Rates, Usury and Isolation in Backward Agriculture," Cambridge Journal of Economics, Oxford University Press, vol. 8(2), pages 145-59, June.
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