Relationship Lending in Microcredit: Evidence from Bangladesh

Sugato Chakravarty () and Abu Zafar Shahriar
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Abu Zafar Shahriar: Purdue University, West Lafayette, Indiana
Authors registered in the RePEc Author Service: Pankaj K. Jain

No 1005, Working Papers from Purdue University, Department of Consumer Sciences

Abstract: We use primary data compiled from the field in 34 randomly selected villages in Bangladesh to examine the role of bank-borrower relationships in the application and approval stages of microcredit. We find evidence that potential borrowers who have maintained membership for a long time, and who have non-mandatory saving accounts and a successful track record of previous loans are more likely to apply, and be approved, for individual as well as group loans. Having a relationship with multiple lenders increases the probability of applying for a loan but reduces the probability of being approved for it. We also provide evidence that it is the large (rather than small) microfinance institutions who rely more on relationship metrics.

Keywords: Microcredit; relationships; credit constraint; adverse selection; peer monitoring (search for similar items in EconPapers)
JEL-codes: D82 G21 O16 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2010-03
New Economics Papers: this item is included in nep-bec, nep-ent, nep-sbm and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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