IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/17800.html
   My bibliography  Save this paper

Microfinance and Moneylender Interest Rate: Evidence from Bangladesh

Author

Listed:
  • Mallick, Debdulal

Abstract

The linkage between the formal and informal credit markets has long been of great interest to development economists. This paper addresses one important aspect of the linkage by empirically investigating the impact of the microfinance program expansion on the moneylender interest rates in Bangladesh, and finds that moneylender interest rates increase with microfinance program expansion. MFI program expansion increases moneylender interest rates in the villages in which more loans are invested in productive economic activities than consumption. Borrowers resort to moneylenders for additional funds because of inadequate supply, unavailability of seasonal working capital from MFIs, and tight repayment schedule, which in turn increases demand for moneylender loans.

Suggested Citation

  • Mallick, Debdulal, 2009. "Microfinance and Moneylender Interest Rate: Evidence from Bangladesh," MPRA Paper 17800, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:17800
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/17800/1/MPRA_paper_17800.pdf
    File Function: original version
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Taslim, M A & Ahmed, F U, 1992. "An Analysis of Land Leasing in Bangladesh Agriculture," Economic Development and Cultural Change, University of Chicago Press, vol. 40(3), pages 615-628, April.
    2. Richard L. Meyer, 2002. "The demand for flexible microfinance products: lessons from Bangladesh," Journal of International Development, John Wiley & Sons, Ltd., vol. 14(3), pages 351-368.
    3. Amin, Sajeda & Rai, Ashok S. & Topa, Giorgio, 2003. "Does microcredit reach the poor and vulnerable? Evidence from northern Bangladesh," Journal of Development Economics, Elsevier, vol. 70(1), pages 59-82, February.
    4. 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.
    5. Ravallion, Martin & Wodon, Quentin, 2000. "Banking on the Poor? Branch Location and Nonfarm Rural Development in Bangladesh," Review of Development Economics, Wiley Blackwell, vol. 4(2), pages 121-139, June.
    6. Jain, Sanjay, 1999. "Symbiosis vs. crowding-out: the interaction of formal and informal credit markets in developing countries," Journal of Development Economics, Elsevier, vol. 59(2), pages 419-444, August.
    7. Kochar, Anjini, 1997. "An empirical investigation of rationing constraints in rural credit markets in India," Journal of Development Economics, Elsevier, vol. 53(2), pages 339-371, August.
    8. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-529, October.
    9. Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December.
    10. 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.
    11. Timothée Demont, 2010. "The Impact of Microfinance on the Informal Credit Market: an Adverse Selection Model," Working Papers 1005, University of Namur, Department of Economics.
    12. Bose, Pinaki, 1998. "Formal-informal sector interaction in rural credit markets," Journal of Development Economics, Elsevier, vol. 56(2), pages 265-280, August.
    13. Jain, Sanjay & Mansuri, Ghazala, 2003. "A little at a time: the use of regularly scheduled repayments in microfinance programs," Journal of Development Economics, Elsevier, vol. 72(1), pages 253-279, October.
    14. Joseph J. Sabia, 2007. "The Effect of Body Weight on Adolescent Academic Performance," Southern Economic Journal, Southern Economic Association, vol. 73(4), pages 871-900, April.
    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. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    17. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
    18. Aleem, Irfan, 1990. "Imperfect Information, Screening, and the Costs of Informal Lending: A Study of a Rural Credit Market in Pakistan," World Bank Economic Review, World Bank Group, vol. 4(3), pages 329-349, September.
    19. Hoff, Karla & Stiglitz, Joseph E, 1990. "Imperfect Information and Rural Credit Markets--Puzzles and Policy Perspectives," World Bank Economic Review, World Bank Group, vol. 4(3), pages 235-250, September.
    20. Floro, Maria Sagrario & Ray, Debraj, 1997. "Vertical Links between Formal and Informal Financial Institutions," Review of Development Economics, Wiley Blackwell, vol. 1(1), pages 34-56, February.
    21. McKernan, Signe-Mary & Pitt, Mark M. & Moskowitz, David, 2005. "Use of the formal and informal financial sectors : does gender matter? empirical evidence from rural Bangladesh," Policy Research Working Paper Series 3491, The World Bank.
    22. Rahman, Aminur, 1999. "Micro-credit initiatives for equitable and sustainable development: Who pays?," World Development, Elsevier, vol. 27(1), pages 67-82, January.
    23. Anna Fruttero & Varun Gauri, 2003. "Location decisions and nongovernmental organization motivation : evidence from rural Bangladesh," Policy Research Working Paper Series 3176, The World Bank.
    24. Inas Rashad & Sara Markowitz, 2007. "Incentives in Obesity and Health Insurance," NBER Working Papers 13113, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Moneylender; microfinance; interest rate; informal sector.;

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:17800. 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: (Joachim Winter). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.