IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Credit Elasticities in Less-Developed Economies: Implications for Microcredit

  • Dean Karlan


  • Jonathan Zinman

Policymakers often urge microfinance institutions to increase interest rates to eliminate reliance on subsidies. However, existing research provides little evidence on interest rate sensitivities in MFI target markets as well as little guidance on how to derive rates. MFI policymakers generally presume that the poor are largely insensitive to interest rates and recommend that MFIs increase interest rates without fear of diminishing access. In this working paper, CGD non-resident fellow and his co-author test the elasticity of demand for microcredit using field data from South Africa. A for-profit South African lender worked with the authors to randomize 50,000 individual interest rate direct mail offers and tracked gross revenue and repayment, allowing the authors to access the effects on the targeted access margin that interests policymakers. They also worked with the lender to explore a margin of loan contracting that has been largely ignored by academics, policy makers and practitioners: loan maturity. They found that price sensitivity increased sharply when individuals were offered a rate above their prior loan's rate. They also found that loan size is far more responsive to changes in loan maturity than to changes in interest rates. This paper is one in a series of six CGD working papers by Dean Karlan on various aspects of microfinance (Working Paper Nos. 106 –111).

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by Center for Global Development in its series Working Papers with number 110.

in new window

Length: 57 pages
Date of creation: Jan 2007
Date of revision:
Handle: RePEc:cgd:wpaper:110
Contact details of provider: Web page:

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cgd:wpaper:110. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David Roodman)

The email address of this maintainer does not seem to be valid anymore. Please ask David Roodman to update the entry or send us the correct address

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.