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Effective Cost of Borrowing from Microfinance Institutions

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  • Ankur TUTLANI

    ()

    (Jawaharlal Nehru University, India.)

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    It has been observed lately that the dependence on moneylenders for borrowing needs of poor borrowers remained stable despite the presence of MFIs, particularly in developing economies. This is surprising given the fact that MFIs charge relatively lower interest rate as compared to moneylenders. The paper explains this trend by arguing that the effective cost of borrowing from MFI is higher relative to the effective cost of borrowing from moneylender. It is due to the additional burden incurred in the form of transaction costs in case of MFI borrowing. Simulation results also support this phenomenon.

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    Article provided by KSP Journals in its journal Journal of Economics Bibliography.

    Volume (Year): 3 (2016)
    Issue (Month): 1 (March)
    Pages: 134-147

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    Handle: RePEc:ksp:journ6:v:3:y:2016:i:1:p:134-147
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    1. Abhijit V. Banerjee & Esther Duflo, 2010. "Giving Credit Where It Is Due," Journal of Economic Perspectives, American Economic Association, vol. 24(3), pages 61-80, Summer.
    2. Thibaut Dehem & Marek Hudon, 2013. "Microfinance from the Clients' Perspective: An Empirical Enquiry into Transaction Costs in Urban and Rural India," Oxford Development Studies, Taylor & Francis Journals, vol. 41(sup1), pages 117-132, August.
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