Microfinance and Moneylender Interest Rate: Evidence from Bangladesh

Mallick, Debdulal (2009): Microfinance and Moneylender Interest Rate: Evidence from Bangladesh.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Moneylender, microfinance, interest rate, informal sector.
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C31 - Cross-Sectional Models ; Spatial Models ; Treatment Effect Models ; Quantile Regressions ; Social Interaction Models; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development

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