IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Microfinance and Moneylenders: Long-run Effects of MFIs on Informal Credit Market in Bangladesh

  • Claudia Berg
  • Shahe Emran
  • Forhad Shilpi

Using two surveys from Bangladesh, this paper provides evidence on the effects of microfinance competition on village moneylender interest rates and households’ dependence on informal credit. The views among practitioners diverge sharply: proponents claim that MFI competition reduces both the moneylender interest rate and households’ reliance on informal credit, while the critics argue the opposite. Taking advantage of recent econometric approaches that address selection on unobservables without imposing standard exclusion restrictions, we find that the MFI competition does not reduce moneylender interest rates, thus partially repudiating the proponents. The effects are heterogeneous; there is no perceptible effect at low levels of MFI coverage, but when MFI coverage is high enough, the moneylender interest rate increases significantly. In contrast, households’ dependence on informal credit tends to go down after becoming MFI member, which contradicts part of the critic’s argument. The evidence is consistent with a model where MFIs drawaway better borrowers from the moneylender, and fixed costs are important in informal lending.

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: http://inm.org.bd/publication/workingpaper/workingpaper25.pdf
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Jabeer Al Sherazy)


Download Restriction: no

Paper provided by Institute of Microfinance (InM) in its series Working Papers with number 25.

as
in new window

Length: 40 pages
Date of creation: Mar 2014
Date of revision:
Handle: RePEc:imb:wpaper:25
Contact details of provider: Web page: http://www.inm.org.bd

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Busso, Matias & DiNardo, John & McCrary, Justin, 2009. "New Evidence on the Finite Sample Properties of Propensity Score Matching and Reweighting Estimators," IZA Discussion Papers 3998, Institute for the Study of Labor (IZA).
  2. M. Shahe Emran & Zhaoyang Hou, 2013. "Access to Markets and Rural Poverty: Evidence from Household Consumption in China," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 682-697, May.
  3. Beatriz Armendáriz & Jonathan Morduch, 2010. "The Economics of Microfinance, Second Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262513986, June.
  4. Blundell, Richard & Costa Dias, Monica, 2008. "Alternative Approaches to Evaluation in Empirical Microeconomics," IZA Discussion Papers 3800, Institute for the Study of Labor (IZA).
  5. Schultz, Theodore W, 1975. "The Value of the Ability to Deal with Disequilibria," Journal of Economic Literature, American Economic Association, vol. 13(3), pages 827-46, September.
  6. Lídia Farré & Roger Klein & Francis Vella, 2013. "A parametric control function approach to estimating the returns to schooling in the absence of exclusion restrictions: an application to the NLSY," Empirical Economics, Springer, vol. 44(1), pages 111-133, February.
  7. Jürgen Maurer & Roger Klein & Francis Vella, 2011. "Subjective Health Assessments and Active Labor Market Participation of Older Men: Evidence from a Semiparametric Binary Choice Model with Nonadditive Correlated Individual-specific Effects," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 764-774, August.
  8. Daniel L. Millimet & Rusty Tchernis, 2009. "Estimation of Treatment Effects Without an Exclusion Restriction: with an Application to the Analysis of the School Breakfast Program," NBER Working Papers 15539, National Bureau of Economic Research, Inc.
  9. Mallick, Debdulal, 2012. "Microfinance and Moneylender Interest Rate: Evidence from Bangladesh," World Development, Elsevier, vol. 40(6), pages 1181-1189.
  10. repec:taf:jnlbes:v:30:y:2012:i:1:p:67-80 is not listed on IDEAS
  11. M. Shahe Emran & Forhad Shilpi, 2012. "The extent of the market and stages of agricultural specialization," Canadian Journal of Economics, Canadian Economics Association, vol. 45(3), pages 1125-1153, August.
  12. Kanbur, S M, 1979. "Impatience, Information and Risk Taking in a General Equilibrium Model of Occupational Choice," Review of Economic Studies, Wiley Blackwell, vol. 46(4), pages 707-18, October.
  13. Hoff, Karla & Stiglitz, Joseph E., 1998. "Moneylenders and bankers: price-increasing subsidies in a monopolistically competitive market," Journal of Development Economics, Elsevier, vol. 55(2), pages 485-518, April.
  14. Farré, Lídia & Klein, Roger & Vella, Francis, 2009. "Does Increasing Parents' Schooling Raise the Schooling of the Next Generation? Evidence Based on Conditional Second Moments," IZA Discussion Papers 3967, Institute for the Study of Labor (IZA).
  15. Zeller, Manfred & Sharma, Manohar & Ahmed, Akhter U. & Rashid, Shahidur, 2001. "Group-based financial institutions for the rural poor in Bangladesh: an institutional- and household-level analysis," Research reports 120, International Food Policy Research Institute (IFPRI).
  16. Heckman, James J & Ichimura, Hidehiko & Todd, Petra, 1998. "Matching as an Econometric Evaluation Estimator," Review of Economic Studies, Wiley Blackwell, vol. 65(2), pages 261-94, April.
  17. Bell, Clive, 1990. "Interactions between Institutional and Informal Credit Agencies in Rural India," World Bank Economic Review, World Bank Group, vol. 4(3), pages 297-327, September.
  18. Mallick, Debdulal & Nabin, Munirul, 2010. "Where NGOs go and do not go?," MPRA Paper 27185, University Library of Munich, Germany.
  19. Roberto Rigobon, 2003. "Identification Through Heteroskedasticity," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 777-792, November.
Full references (including those not matched with items on IDEAS)

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:imb:wpaper:25. 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: (Jabeer Al Sherazy)

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.