Microfinance and Missing Markets

Emran, M. Shahe and Morshed, A.K.M Mahbub and Stiglitz, Joseph E. (2011): Microfinance and Missing Markets.

Abstract

The existing theoretical analysis of microfinance focuses on the nature of the loan contract such as group liability. We draw attention to the role of missing or imperfect labor market in understanding some of the important `second generation' debates in microfinance. Our analysis helps explain a number puzzles in microfinance such as (i) high repayment rates with high interest rates, (ii) difficulties in scaling up projects, (iii) conflicting views about interest rate elasticity of demand for microcredit. The analysis implies that while microcredit can play a vital role when labor markets are underdeveloped, demand for such loans may progressively decline as markets develop.

• Item Type: MPRA Paper
• Language: English
• Keywords: Microfinance; Microcredit Puzzles; Labor Market; Missing Markets; High Interest Rate; Scaling Up; Interest Rate Elasticity of Microcredit; Progressive Lending; Structural Change
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D13 - Household Production and Intrahousehold Allocation; J - Labor and Demographic Economics > J4 - Particular Labor Markets > J43 - Agricultural Labor Markets; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance; D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D52 - Incomplete Markets; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J23 - Labor Demand

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