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Microfinance and missing markets

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  • M. Shahe Emran
  • A. K. M. Mahbub Morshed
  • Joseph E. Stiglitz

Abstract

The existing theoretical analysis of microfinance focuses on the nature of the loan contract such as group liability. We draw attention to the role of missing or imperfect labour markets in understanding some of the important “second generation” debates in microfinance. Our analysis helps explain a number of puzzles in microfinance including high repayment rates with high interest rates, difficulties in scaling up projects, limited economic impact on borrowing households, low take‐up rates in recent microcredit programs, conflicting views about the interest rate elasticity of demand, and spurious mission drift. Microcredit can play a role when labour markets are underdeveloped, but it may also hinder structural transformation. Microfinancement et marchés inexistants. En matière de microfinancement, l’analyse théorique actuelle s’intéresse principalement à la nature du contrat de prêt, notamment la responsabilité collective. Afin de comprendre les débats de seconde génération relatifs au microfinancement, nous attirons l’attention sur le rôle que peut jouer un marché du travail absent ou imparfait. Notre analyse permet d’expliquer un certain nombre de mystères liés au microfinancement, notamment les taux de remboursement élevés couplés aux taux d’intérêt élevés, les difficultés à développer des projets, les retombées économiques limitées sur les ménages emprunteurs , les faibles taux de participation dans les programmes de microfinancement récents, les points de vue contradictoires relativement aux conséquences de l’élasticité des taux d’intérêt sur la demande de microcrédit et le changement

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  • M. Shahe Emran & A. K. M. Mahbub Morshed & Joseph E. Stiglitz, 2021. "Microfinance and missing markets," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(1), pages 34-67, February.
  • Handle: RePEc:wly:canjec:v:54:y:2021:i:1:p:34-67
    DOI: 10.1111/caje.12502
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    More about this item

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • J43 - Labor and Demographic Economics - - Particular Labor Markets - - - Agricultural Labor Markets
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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