Credit Constraints. A first approach to the “microfinance solution”. 1) Characteristics of credit markets in poor countries. Demand side : fixed capital, working capital, consumption ….. (not very different from those in developed countries) Supply side : -Institutional lenders
Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.
A first approach to the “microfinance solution”
-Informal lenders in response to informational asymmetries
In turn has led to:
Segmentation, Interlinkage, Interest Rate Variation, Rationing, Exclusivity
which in turn led to various “theories” of informal credit markets
After all, Neoclassical theory would suggest….
And interest rates faced by the poor would be exceedingly anyway for
2 Main Reasons:
In principle, the answer is yes. As mentioned earlier, from institutional sources, and from informal sources
Institutional sources, mostly development banks, where credit was subsidized. Concerns:
Pushed out informal credit suppliers
No incentives to collect poor individuals’ savings
And subsidizing interest with outside sources of credit via institutional sources was inefficient
In the mid – 1970s, in Bangladesh….
→ Transaction costs ↓
→ Interest rates were ↓
→ Repayment Rates ↑
In turn, a demonstration to donor agencies that lending to the poor could be efficient, and potentially profitable too!!
→ Next class: A-M (2005), Chapter 2