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Microfinance and Moneylender Interest Rate: Evidence from Bangladesh

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Author Info
Mallick, Debdulal
Abstract

The linkage between the formal and informal credit markets has long been of great interest to development economists. This paper addresses one important aspect of the linkage by empirically investigating the impact of the microfinance program expansion on the moneylender interest rates in Bangladesh, and finds that moneylender interest rates increase with microfinance program expansion. MFI program expansion increases moneylender interest rates in the villages in which more loans are invested in productive economic activities than consumption. Borrowers resort to moneylenders for additional funds because of inadequate supply, unavailability of seasonal working capital from MFIs, and tight repayment schedule, which in turn increases demand for moneylender loans.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17800.

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Date of creation: May 2009
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Handle: RePEc:pra:mprapa:17800

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Related research
Keywords: Moneylender; microfinance; interest rate; informal sector.;

Find related papers by JEL classification:
O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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References listed on IDEAS
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  1. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January. [Downloadable!] (restricted)
  2. Kochar, Anjini, 1997. "An empirical investigation of rationing constraints in rural credit markets in India," Journal of Development Economics, Elsevier, vol. 53(2), pages 339-371, August. [Downloadable!] (restricted)
  3. Jain, Sanjay & Mansuri, Ghazala, 2003. "A little at a time: the use of regularly scheduled repayments in microfinance programs," Journal of Development Economics, Elsevier, vol. 72(1), pages 253-279, October. [Downloadable!] (restricted)
  4. Rahman, Aminur, 1999. "Micro-credit initiatives for equitable and sustainable development: Who pays?," World Development, Elsevier, vol. 27(1), pages 67-82, January. [Downloadable!] (restricted)
  5. Bell, Clive, 1990. "Interactions between Institutional and Informal Credit Agencies in Rural India," World Bank Economic Review, Oxford University Press, vol. 4(3), pages 297-327, September.
  6. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-29, October.
  7. Hoff, Karla & Stiglitz, Joseph E., 1998. "Moneylenders and bankers: price-increasing subsidies in a monopolistically competitive market," Journal of Development Economics, Elsevier, vol. 55(2), pages 485-518, April. [Downloadable!] (restricted)
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  8. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May. [Downloadable!] (restricted)
  9. Bose, Pinaki, 1998. "Formal-informal sector interaction in rural credit markets," Journal of Development Economics, Elsevier, vol. 56(2), pages 265-280, August. [Downloadable!] (restricted)
  10. Floro, Maria Sagrario & Ray, Debraj, 1997. "Vertical Links between Formal and Informal Financial Institutions," Review of Development Economics, Blackwell Publishing, vol. 1(1), pages 34-56, February. [Downloadable!] (restricted)
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