EconPapers    
Economics at your fingertips  
 

Do interest rates matter? credit demand in the Dhaka Slums

Rajeev Dehejia, Heather Montgomery and Jonathan Morduch ()

MPRA Paper from University Library of Munich, Germany

Abstract: If the demand for credit by the poor changes little when interest rates increase, lenders can raise fees to cost-covering levels without losing customers. This claim is at the core of sustainable microfinance strategies that aim to provide banking services to the poor while eschewing long-term subsidies, but, so far, there is little direct evidence of this. This paper uses data from SafeSave, a credit cooperative in the slums of Dhaka, Bangladesh, to examine how sensitive borrowers are to increases in the interest rate on loans. Using unanticipated between-branch variation in the interest rate we estimate interest elasticities of loan demand ranging from -0.73 to -1.04. Less wealthy accountholders are more sensitive to the interest rate than (relatively) wealthier borrowers (an elasticity of -0.86 compared to -0.26), and consequently the bank’s portfolio shifts away from its poorest borrowers when it increases the interest rate.

Keywords: microfinance; credit; demand (search for similar items in EconPapers)
JEL-codes: O17 O16 G21 (search for similar items in EconPapers)
Date: 2005-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33) Track citations by RSS feed

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/33146/1/MPRA_paper_33146.pdf original version (application/pdf)

Related works:
Journal Article: Do interest rates matter? Credit demand in the Dhaka slums (2012) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:33146

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().

 
Page updated 2020-05-05
Handle: RePEc:pra:mprapa:33146