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Has the Introduction of Microfinance Crowded-out Informal Loans in Malawi?

  • Richard Disney
  • Eleonora Fischera
  • Trudy Owens

This paper uses household data to test whether microfinance institutions created by the Malawian government in the mid-1990s under its Poverty Alleviation Programme crowded out access to informal loans. As in several recent studies, the paper adopts policy evaluation techniques to identify a causal relationship between access to government-sponsored credit programmes and informal loans. After taking treatment heterogeneity into account with a multiple treatment model, the paper finds strong evidence of crowding out of formal group lending on informal sources. In particular, participation in the most widespread microfinance programme has a negative and significant effect on borrowing from informal sources, reducing on average the amount that members borrow from informal lenders by more than 70 percent of the average loan value.

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File URL: http://www.nottingham.ac.uk/credit/documents/papers/10-08.pdf
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Paper provided by University of Nottingham, CREDIT in its series Discussion Papers with number 10/08.

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Handle: RePEc:not:notcre:10/08
Contact details of provider: Postal: School of Economics University of Nottingham University Park Nottingham NG7 2RD
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Web page: http://www.nottingham.ac.uk/economics/

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