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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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    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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