Microfinance and Moneylenders: Long-Run Effects of MFIs on Informal Credit Market in Bangladesh
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 competition of microfinance instit...
| Main Authors: | , , |
|---|---|
| Language: | en_US |
| Published: |
World Bank, Washington, D.C.
2013
|
| Subjects: | |
| Online Access: | http://hdl.handle.net/10986/16317 |
| id |
okr-10986-16317 |
|---|---|
| recordtype |
oai_dc |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
en_US |
| topic |
Access to Finance Access to markets accounting adverse selection affiliates aggregate demand Agriculture amount of loans Asset Purchase bank branch bank loans base year benchmark biases BIDS borrower branch location branch office checks client base collateral Competitive Markets consumer price index Credit Agencies credit cooperatives Credit Market credit markets credit programs Credit Rationing Credit System credit transactions debt debt accumulation Default Risk demand for credit developing countries Development Economics development policy disbursement donor funding econometric analysis econometrics economic activities economic conditions Economic Development Economic Statistics economics economies of scale educated women education level employment entrepreneurial ability exclusion Expenditure extreme poverty Federal Reserve Financial Institutions Financial Markets financial sector reform financial sustainability fixed costs fixed effect model formal bank formal banks formal financial sector government banks government credit government interventions government policy green revolution high interest rate high interest rates household fixed effect household fixed effects Household Income households human capital Human Resources IDS income variability indebtedness inefficiency Informal Borrowing Informal Credit informal financiers informal lenders informal loan informal loans instrument interest rate interest rate data interest rates International Bank investment projects Labor Market land ownership land-poor households landholders landless household landless households loan loan amount loan amounts loan demand loan officer loan officers loan product loan size loan sizes loans from friends market segmentation MARKET SHARE market shares maturity Merchant MFI MFIs Micro Finance micro-credit Microcredit microenterprises Microfinance microfinance institution microfinance institutions money lender moneylender Moneylenders moral hazard outstanding loans pool of borrowers positive effects poverty alleviation productivity public banks public safety net Public Subsidies regional dummy Regulatory Authority repayment repayment capacity repayment rate repayment rates repayment schedule repayment schedules return returns risk aversion risk premium Risk Taking rural banks rural credit rural credit market rural credit markets Rural Financial Markets safety net settlement short-term consumption loans sizes of loans source of income Sustainable Finance transactions costs undue influence usury usury laws village villages Vulnerable Group withdrawal |
| spellingShingle |
Access to Finance Access to markets accounting adverse selection affiliates aggregate demand Agriculture amount of loans Asset Purchase bank branch bank loans base year benchmark biases BIDS borrower branch location branch office checks client base collateral Competitive Markets consumer price index Credit Agencies credit cooperatives Credit Market credit markets credit programs Credit Rationing Credit System credit transactions debt debt accumulation Default Risk demand for credit developing countries Development Economics development policy disbursement donor funding econometric analysis econometrics economic activities economic conditions Economic Development Economic Statistics economics economies of scale educated women education level employment entrepreneurial ability exclusion Expenditure extreme poverty Federal Reserve Financial Institutions Financial Markets financial sector reform financial sustainability fixed costs fixed effect model formal bank formal banks formal financial sector government banks government credit government interventions government policy green revolution high interest rate high interest rates household fixed effect household fixed effects Household Income households human capital Human Resources IDS income variability indebtedness inefficiency Informal Borrowing Informal Credit informal financiers informal lenders informal loan informal loans instrument interest rate interest rate data interest rates International Bank investment projects Labor Market land ownership land-poor households landholders landless household landless households loan loan amount loan amounts loan demand loan officer loan officers loan product loan size loan sizes loans from friends market segmentation MARKET SHARE market shares maturity Merchant MFI MFIs Micro Finance micro-credit Microcredit microenterprises Microfinance microfinance institution microfinance institutions money lender moneylender Moneylenders moral hazard outstanding loans pool of borrowers positive effects poverty alleviation productivity public banks public safety net Public Subsidies regional dummy Regulatory Authority repayment repayment capacity repayment rate repayment rates repayment schedule repayment schedules return returns risk aversion risk premium Risk Taking rural banks rural credit rural credit market rural credit markets Rural Financial Markets safety net settlement short-term consumption loans sizes of loans source of income Sustainable Finance transactions costs undue influence usury usury laws village villages Vulnerable Group withdrawal Berg, Claudia Emran, M. Shahe Shilpi, Forhad Microfinance and Moneylenders: Long-Run Effects of MFIs on Informal Credit Market in Bangladesh |
| geographic_facet |
South Asia Bangladesh |
| relation |
Policy Research Working Paper;No.6619 |
| description |
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 competition of microfinance institutions 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, this paper finds that microfinance 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 coverage, but when microfinance coverage is high enough, the moneylender interest rate increases significantly. In contrast, households' dependence on informal credit tends to go down after they become a member of a microfinance institution, which contradicts part of the critic's argument. The evidence is consistent with a model where microfinance institutions draw away better borrowers from the moneylender, and fixed costs are important in informal lending. |
| author |
Berg, Claudia Emran, M. Shahe Shilpi, Forhad |
| author_facet |
Berg, Claudia Emran, M. Shahe Shilpi, Forhad |
| author_sort |
Berg, Claudia |
| title |
Microfinance and Moneylenders: Long-Run Effects of MFIs on Informal Credit Market in Bangladesh |
| title_short |
Microfinance and Moneylenders: Long-Run Effects of MFIs on Informal Credit Market in Bangladesh |
| title_full |
Microfinance and Moneylenders: Long-Run Effects of MFIs on Informal Credit Market in Bangladesh |
| title_fullStr |
Microfinance and Moneylenders: Long-Run Effects of MFIs on Informal Credit Market in Bangladesh |
| title_full_unstemmed |
Microfinance and Moneylenders: Long-Run Effects of MFIs on Informal Credit Market in Bangladesh |
| title_sort |
microfinance and moneylenders: long-run effects of mfis on informal credit market in bangladesh |
| publisher |
World Bank, Washington, D.C. |
| publishDate |
2013 |
| url |
http://hdl.handle.net/10986/16317 |
| _version_ |
1764432824401657856 |
| spelling |
okr-10986-163172021-04-23T14:03:28Z Microfinance and Moneylenders: Long-Run Effects of MFIs on Informal Credit Market in Bangladesh Berg, Claudia Emran, M. Shahe Shilpi, Forhad Access to Finance Access to markets accounting adverse selection affiliates aggregate demand Agriculture amount of loans Asset Purchase bank branch bank loans base year benchmark biases BIDS borrower branch location branch office checks client base collateral Competitive Markets consumer price index Credit Agencies credit cooperatives Credit Market credit markets credit programs Credit Rationing Credit System credit transactions debt debt accumulation Default Risk demand for credit developing countries Development Economics development policy disbursement donor funding econometric analysis econometrics economic activities economic conditions Economic Development Economic Statistics economics economies of scale educated women education level employment entrepreneurial ability exclusion Expenditure extreme poverty Federal Reserve Financial Institutions Financial Markets financial sector reform financial sustainability fixed costs fixed effect model formal bank formal banks formal financial sector government banks government credit government interventions government policy green revolution high interest rate high interest rates household fixed effect household fixed effects Household Income households human capital Human Resources IDS income variability indebtedness inefficiency Informal Borrowing Informal Credit informal financiers informal lenders informal loan informal loans instrument interest rate interest rate data interest rates International Bank investment projects Labor Market land ownership land-poor households landholders landless household landless households loan loan amount loan amounts loan demand loan officer loan officers loan product loan size loan sizes loans from friends market segmentation MARKET SHARE market shares maturity Merchant MFI MFIs Micro Finance micro-credit Microcredit microenterprises Microfinance microfinance institution microfinance institutions money lender moneylender Moneylenders moral hazard outstanding loans pool of borrowers positive effects poverty alleviation productivity public banks public safety net Public Subsidies regional dummy Regulatory Authority repayment repayment capacity repayment rate repayment rates repayment schedule repayment schedules return returns risk aversion risk premium Risk Taking rural banks rural credit rural credit market rural credit markets Rural Financial Markets safety net settlement short-term consumption loans sizes of loans source of income Sustainable Finance transactions costs undue influence usury usury laws village villages Vulnerable Group withdrawal 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 competition of microfinance institutions 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, this paper finds that microfinance 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 coverage, but when microfinance coverage is high enough, the moneylender interest rate increases significantly. In contrast, households' dependence on informal credit tends to go down after they become a member of a microfinance institution, which contradicts part of the critic's argument. The evidence is consistent with a model where microfinance institutions draw away better borrowers from the moneylender, and fixed costs are important in informal lending. 2013-11-25T21:25:57Z 2013-11-25T21:25:57Z 2013-09 http://hdl.handle.net/10986/16317 en_US Policy Research Working Paper;No.6619 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, D.C. South Asia Bangladesh |