Credit Elasticities in Less-Developed Economies: Implications for Microfinance

Jonathan Zinman and Dean Karlan

No 6071, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Policymakers often prescribe that microfinance institutions increase interest rates to eliminate reliance on subsidies. This strategy makes sense if the poor are rate insensitive: then microlenders increase profitability (or achieve sustainability) without reducing the poor?s access to credit. We test the assumption of price inelastic demand using randomized trials conducted by a consumer lender in South Africa. The demand curves are downward-sloping, and steep for price increases relative to the lender?s standard rates. We also find that loan size is far more responsive to changes in loan maturity than to changes in interest rates, which is consistent with binding liquidity constraints.

Keywords: Microfinance (search for similar items in EconPapers)
JEL-codes: G2 (search for similar items in EconPapers)
Date: 2007-01
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-dev, nep-fmk and nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Journal Article: Credit Elasticities in Less-Developed Economies: Implications for Microfinance (2008)
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