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Does microfinance change informal lending in village economies? Evidence from Bangladesh

Asadul Islam (), Chau Nguyen and Russell Smyth ()

Journal of Banking & Finance, 2015, vol. 50, issue C, 141-156

Abstract: This paper examines how availability of microfinance influences households’ borrowing from informal sources in village economies. It uses a unique household level panel data set, which spans more than two decades (1987–2008), from rural Bangladesh. We find that households’ access to microfinance reduces the incidence of borrowing from informal sources, but not the amount of borrowing. We find that less poor households benefit more in terms of reducing their reliance on informal borrowing and that the benefit accrues over time. We also find that having access to microfinance increases women’s informal borrowing for small consumption usage, without facilitating access to new business opportunities.

Keywords: Microfinance; Bangladesh; Informal loan; Long-term effects (search for similar items in EconPapers)
JEL-codes: C21 C23 G21 O12 Q00 (search for similar items in EconPapers)
Date: 2015
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