Berg, Claudia and Emran, M. Shahe and Shilpi, Forhad (2013): Microfinance and Moneylenders: Long-run Effects of MFIs on Informal Credit Market in Bangladesh.
Preview |
PDF
MPRA_paper_49519.pdf Download (889kB) | Preview |
Abstract
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 MFI competition 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 the standard exclusion restrictions, we find that the MFI 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 MFI coverage, but when MFI coverage is high enough, the moneylender interest rate increases significantly. In contrast, households’ dependence on informal credit tends to go down after becoming MFI member, which contradicts part of the critic’s argument. The evidence is consistent with a model where MFIs draw away better borrowers from the moneylender, and fixed costs are important in informal lending.
Item Type: | MPRA Paper |
---|---|
Original Title: | Microfinance and Moneylenders: Long-run Effects of MFIs on Informal Credit Market in Bangladesh |
Language: | English |
Keywords: | Microfinance, Moneylenders, Microcredit, Interest Rates, Informal Borrowing, Long-run Effects, Bangladesh, Identification through Heteroskedasticity |
Subjects: | 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 O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements |
Item ID: | 49519 |
Depositing User: | Claudia Berg |
Date Deposited: | 05 Sep 2013 13:59 |
Last Modified: | 10 Oct 2019 13:39 |
References: | Aleem, I (1993) “Imperfect Information, Screening, and the Costs of Informal Lending: A Study of a Rural Credit Market in Pakistan” in The Economics of Rural Organizations: Theory, Practice, and Policy, edited by Karla Hoff, Avishay Braverman, and Joseph E. Stiglitz , Oxford University Press. Alexander-Tedeschi, G and D. Karlan (2009), “Cross-sectional Impact Analysis: Bias from Drop-Outs”, FAI, Yale University. Armendáriz, B, and J. Morduch (2010) The Economics of Microfinance, Second Edition, The MIT Press, Cambridge, Mass. Banerjee, A (2003), “Contracting Constraints, Credit Markets, and Economic Development”, Chapter in “Advances in Economics and Econometrics: Theory and Applications, Eighth World Congress”, Volume III Edited by Mathias Dewatripont, Lars Peter Hansen and Stephen J. Turnovsky Bell, Clive (1990) “Interactions between Institutional and Informal Credit Agencies in Rural India” The World Bank Economic Review, vol. 4, No. 3: pp. 297-327 Berg, Claudia and M. Shahe Emran (2011), “Does Microfinance Help the Ultrapoor Cope with Seasonal Shocks? Evidence from Seasonal Famine (Monga) in Bangladesh”, Working paper, George Washington University. Blundell, R and Monica Costa Dias (2009), “Alternative Approaches to Evaluation in Empirical Microeconomics”, Journal of Human Resources, Summer 2009, Vol. 44, No.3. Bose , Pinaki (1988) “Formal-Informal sector interactions in rural credit markets” Journal of Development Economics, Vol. 56, pp. 265-280. Busso, M., DiNardo J., McCrary, J. (2011), “New Evidence on the Finite Sample Properties of Propensity Score Reweighting and Matching Estimators”, Working Paper, University of California, Berkeley. Ebbes, Peter, Michel Wedel, Ulf Böckenholt (2009) “Frugal IV alternatives to Identify the Parameter for an Endogenous Regressor”, Journal of Applied Econometrics, 24: pp. 446–468 Emran, M. Shahe and Zaoyang Hou (2013), “Access to Markets and Rural Poverty: Evidence from Household Consumption in China”, Review of Economics and Statistics, May, 2013. Emran, M. Shahe and Forhad Shilpi (2012) “The Extent of the Market and Stages of Agricultural Specialization” Canadian Journal of Economics, August, 2012. Emran, M. Shahe and Yan Sun (2011) “Magical Transition? Intergenerational Educational and Occupational Mobility in Rural India: 1988-2002”, working paper, GWU and IFPRI. Emran, M. Shahe, Virginia Robano, and Stephen C. Smith (forthcoming) “Assessing the Frontiers of Ultra-Poverty Reduction: Evidence from CFPR/TUP, An Innovative Program in Bangladesh”, Economic Development and Cultural Change. Farré, Lídia, Roger Klein, and Francis Vella (2013) “A parametric control function approach to estimating the returns to schooling in the absence of exclusion restrictions: an application to the NLSY”, Empirical Economics, 43 (1), 2013. Farre, Lidia, Roger Klein and Francis Vella (2012), “Does Increasing Parents' Schooling Raise the Schooling of the Next Generation? Evidence based on Conditional Second Moments”, Oxford Bulletins of Economics and Statistics, (2012), vol 74(5), p.p. 676-690 Ghosh, Parikshit, Dilip Mookherjee, and Debraj Ray (1999) “Credit Rationing in Developing Countries: An Overview of the Theory”, in D. Mookherjee and D. Ray Ed. Readings in Development Economics. Gilchrist, Simon and Egon Zakrajˇsek (2012), “The Impact of the Federal Reserve’s Large-Scale Asset Purchase Programs on Default Risk”, Working Paper, Boston University. Hartarska, V., Shen, X., and R. Mersland, (2013) “Scale Economies and Elasticities of Substitution in Microfinance Institutions,” Journal of Banking and Finance, 37(1): 118-131. Heckman, James, Hidehiko Ichimura, and Petra Todd (1998) “Matching as an Econometric Evaluations Estimator”, Review of Economic Studies, vol. 65, No. 2. Hoff, Karla and Joseph E. Stigliz (1993) “Imperfect Information and Rural Credit Markets: Puzzles and Policy Perspectives” In K. Hoff, A. Braverman, and J. E. Stiglitz, eds., The Economics of Rural Organization: Theory, Practice, and Policy. New York: Oxford University Press. Hoff, Karla and Joseph E. Stiglitz (1998) “Moneylenders and Bankers: Price-Increasing Subsidies in a Monopolistically Competitive Markets” Journal of Development Economics 55: 485-518. Kanbur, S M, (1979). "Impatience, Information and Risk Taking in a General Equilibrium Model of Occupational Choice," Review of Economic Studies, Wiley Blackwell, vol. 46(4), pages 707-18, October. Karlan, D and J. Morduch (2010), “Access to Finance”, Chapter in Handbook of Development Economics, Vol. 5, Edited by Dani Rodrik and Mark Rosenzweig. Klein, Roger and Francis Vella (2010) “Estimating a Class of Triangular Simultaneous Equations Models Without Exclusion Restrictions” Journal of Econometrics, 154, 154-164 Klein, Roger and Francis Vella (2009a) “A Semiparametric Model for Binary Response and Continuous Outcomes under Index Heterocedasticity” Journal of Applied Econometrics, 24: 735-762 Klein, Roger and Francis Vella (2009b) “Estimating the Returns to Endogenous Schooling Decisions via Conditional Second Moments” Journal of Human Resources, 44(4), pp. 1047-1065 Lewbel, Arthur (2012) “Using Heteroskedasticity to Identify and Estimate Mismeasured and Endogenous Regressor Models”, Journal of Business and Economic Statistics, 30, 67-80. Mallick, Debdulal, 2012. "Microfinance and Moneylender Interest Rate: Evidence from Bangladesh," World Development, Elsevier, vol. 40(6), pages 1181-1189. Mallick, Debdulal and Nabin, Munirul, ( 2010). "Where NGOs Go and Do Not Go?," MPRA Paper 27185, University Library of Munich, Germany. Matin, Imran, et al. (2008), “Crafting a Graduation Pathway for the ultra-poor: Lessons and Evidence from a BRAC Programme”, RED Working Paper, BRAC. Matin, Imran (1998), “Mis-Targeting by the Grameen Bank: A Possible Explanation”, IDS Bulletin, Volume 29 Issue 4, Pages 51 – 58. Millimet, Daniel L. and Rusty Tchernis (forthcoming) “Estimation of Treatment Effects without an Exclusion Restriction: with an Application to the Analysis of the School Breakfast Program”, Journal of Applied Econometrics. Maurer, J, Roger Klein and Francis Vella, (2011). "Subjective Health Assessments and Active Labor Market Participation of Older Men: Evidence from a Semiparametric Binary Choice Model with Nonadditive Correlated Individual-specific Effects," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 764-774, August. Rabbani, Mehnaz, Vivek A. Prakash, and Munshi Sulaiman, (2006) “Impact Assessment of CFPR/TUP: A Descriptive Analysis Based on 2002-2005 Panel Data”, BRAC TUP Working Paper No. 12, July 2006. Rahman, R. I., (2003), “Future Challenges Facing the MFIs of Bangladesh: Choice of Target Groups, Loan Sizes and Rate of Interest”, Working Paper, BIDS, Bangladesh. Rigobon, Roberto (2003) “Identification Through Heteroskedasticity” , The Review of Economics and Statistics, 85(4): 777-792. Robinson, Marguerite S. (2001) The Microfinance Revolution: Sustainable Finance for the Poor, World Bank, Washington, DC Salim, M (2011), “Revealed Objective Functions of Microfinance Institutions: Evidence from Bangladesh”, University of Virginia. Schroeder, Elizabeth (2010), “The Impact of Microcredit Borrowing on Household Consumption in Bangladesh”, Working Paper, Georgetown University. Schultz, Theodore W, (1975). "The Value of the Ability to Deal with Disequilibria," Journal of Economic Literature, American Economic Association, vol. 13(3), pages 827-46, September. Siamwalla, Ammar, Chirmsak Pinthong, Mipon Poapongsakorn, Ploenpit Satsanguan, Prayong Nettayarak,Wanrak Mingmaneenakin, and Yuavares Tubpun. (1993), “The Thai Rural Credit System and Elements of a Theory: Public Subsidies, Private Information, and Segmented Markets.” In K. Hoff, A. Braverman, and J. E. Stiglitz, eds., The Economics of Rural Organization: Theory, Practice, and Policy. New York: Oxford University Press. Sinha, S. and I, Matin (1998) “Informal credit transactions of micro-credit borrowers in rural Bangladesh”, IDS Bulletin, Vol - 29, Issue - 4, October - 1998 Von Pischke, J.D., Dale W.Adams, and Gordon Donald, eds. (1983) Rural Financial Markets in Developing Countries: Their Use and Abuse. Baltimore, Md.: The Johns Hopkins University Press. Wright, Phillip G. The Tariff on Animal and Vegetable Oils (New York: Macmillan, 1928) Zeller, M, Sharma, Ahmed, and Rashid (2001) “Group-Based Financial Institutions for the Rural Poor in Bangladesh: An Institutional and Household-Level Analysis” IFPRI Research Report 2 |
URI: | https://mpra.ub.uni-muenchen.de/id/eprint/49519 |
Available Versions of this Item
-
Microfinance and Moneylenders: Long-run Effects of MFIs on Informal Credit Market in Bangladesh. (deposited 14 Aug 2013 12:58)
- Microfinance and Moneylenders: Long-run Effects of MFIs on Informal Credit Market in Bangladesh. (deposited 05 Sep 2013 13:59) [Currently Displayed]