Berg, Claudia
Microfinance and Moneylenders Long-Run Effects of MFIs on Informal Credit Market in Bangladesh / Berg, Claudia [electronic resource] : Berg, Claudia - Washington, D.C., The World Bank, 2013 - 1 online resource (38 p.) - Policy research working papers. World Bank e-Library. .
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.
10.1596/1813-9450-6619
Access to Finance
Agriculture
Banks & Banking Reform
Debt Markets
Economic Theory & Research
Emerging Markets
Identification Through Heteroskedasticity
Informal Borrowing
Interest Rates
Long-Run Effects
Microcredit
Microfinance
Moneylenders
Rural Development
Bangladesh
Microfinance and Moneylenders Long-Run Effects of MFIs on Informal Credit Market in Bangladesh / Berg, Claudia [electronic resource] : Berg, Claudia - Washington, D.C., The World Bank, 2013 - 1 online resource (38 p.) - Policy research working papers. World Bank e-Library. .
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.
10.1596/1813-9450-6619
Access to Finance
Agriculture
Banks & Banking Reform
Debt Markets
Economic Theory & Research
Emerging Markets
Identification Through Heteroskedasticity
Informal Borrowing
Interest Rates
Long-Run Effects
Microcredit
Microfinance
Moneylenders
Rural Development
Bangladesh