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Microfinance and Moneylender Interest Rate: Evidence from Bangladesh

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  • Mallick, Debdulal

Abstract

The linkage between the formal and informal credit markets in developing countries has largely been unexplored. This paper addresses one important aspect of the linkage by empirically investigating the impact of the intervention of microfinance programs on the moneylender interest rates in northern Bangladesh, and finds that moneylender interest rates increase with microfinance program coverage. Higher microfinance program coverage 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 probably because of inadequate supply, unavailability of seasonal working capital from MFIs, and tight repayment schedules, which in turn increase demand for moneylender loans.

Suggested Citation

  • Mallick, Debdulal, 2012. "Microfinance and Moneylender Interest Rate: Evidence from Bangladesh," World Development, Elsevier, vol. 40(6), pages 1181-1189.
  • Handle: RePEc:eee:wdevel:v:40:y:2012:i:6:p:1181-1189 DOI: 10.1016/j.worlddev.2011.12.011
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    Cited by:

    1. Janda, Karel & Zetek, Pavel, 2013. "Macroeconomic factors influencing interest rates of microfinance institutions in Latin America," MPRA Paper 49973, University Library of Munich, Germany.
    2. Migheli, Matteo, 2016. "Land Ownership, Access to Informal Credit and Its Cost in Rural Vietnam," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201619, University of Turin.
    3. Claudia Berg & M. Shahe Emran & Forhad Shilpi, 2013. "Microfinance and Moneylenders: Long-run Effects of MFIs on Informal Credit Market in Bangladesh," Working Papers 2013-8, The George Washington University, Institute for International Economic Policy.
    4. Demont, Timothée, 2016. "Microfinance spillovers: A model of competition in informal credit markets with an application to Indian villages," European Economic Review, Elsevier, pages 21-41.
    5. Islam, Asadul & Nguyen, Chau & Smyth, Russell, 2015. "Does microfinance change informal lending in village economies? Evidence from Bangladesh," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 141-156.
    6. Narayan Chandra Das & Nayma Qayum & Mehejabeen Khan & Fazlul Karim, 2010. "Social Protection Package for the Retrenched Workers of State-owned Enterprises: A quick Assessment," Working Papers id:2710, eSocialSciences.
    7. Carolina Laureti, 2015. "The Debt Puzzle in Dhaka’s Slums: Do Poor People Co-hold for Liquidity Needs?," Working Papers CEB 15-021, ULB -- Universite Libre de Bruxelles.
    8. Claudia Berg & M. Shahe Emran & Forhad Shilpi, 2013. "Microfinance and Moneylenders: Long-run Effects of MFIs on Informal Credit Market in Bangladesh," Working Papers 2013-8, The George Washington University, Institute for International Economic Policy.
    9. Mallick, Debdulal & Nabin, Munirul, 2010. "Where NGOs go and do not go?," MPRA Paper 27185, University Library of Munich, Germany.
    10. repec:eco:journ1:2017-03-9 is not listed on IDEAS
    11. Janda, Karel & Zetek, Pavel, 2014. "Survey of Microfinance Controversies and Challenges," MPRA Paper 56657, University Library of Munich, Germany.
    12. Ha van Dung, 2014. "Short-term precaution, insurance and saving mechanisms in rural Vietnam," Working Papers CIE 82, Paderborn University, CIE Center for International Economics.
    13. Marc Labie & Carolina Laureti & Ariane Szafarz, 2016. "Discipline and Flexibility: A Behavioral Perspective on Product Design in Microfinance," Working Papers CEB 15-020, ULB -- Universite Libre de Bruxelles.
    14. Joseph Kangile, Rajabu, 2015. "Efficiency in Production By Smallholder Rice Farmers Under Cooperative Irrigation Schemes in Pwani and Morogoro Regions, Tanzania," Research Theses 243447, Collaborative Masters Program in Agricultural and Applied Economics.
    15. Donfouet, Hermann Pythagore Pierre & Barczak, Aleksandra & Détang-Dessendre, Cécile & Maigné, Elise, 2017. "Crop Production and Crop Diversity in France: A Spatial Analysis," Ecological Economics, Elsevier, vol. 134(C), pages 29-39.
    16. Marc Labie & Carolina Laureti & Ariane Szafarz, 2013. "Flexible Products in Microfinance: Overcoming the Demand-Supply Mismatch," Working Papers CEB 13-044, ULB -- Universite Libre de Bruxelles.
    17. repec:pal:eurjdr:v:29:y:2017:i:2:d:10.1057_s41287-016-0014-y is not listed on IDEAS
    18. Marie-Catherine Riekhof, 2016. "The Insurance Premium in the Interest Rates of Interlinked Loans in a Small-scale Fishery," CER-ETH Economics working paper series 16/264, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    19. Dan Brockington & Nicola Banks, 2014. "Exploring the Success of BRAC Tanzania’s Microcredit Programme," Brooks World Poverty Institute Working Paper Series 20214, BWPI, The University of Manchester.
    20. Mookherjee, D. & Motta, A., 2016. "A theory of interactions between MFIs and informal lenders," Journal of Development Economics, Elsevier, pages 191-200.

    More about this item

    Keywords

    microfinance; moneylender; interest rate; informal sector; South Asia; Bangladesh;

    JEL classification:

    • O17 - Economic Development, Innovation, 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; Quantile Regressions; Social Interaction Models
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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