Credit Elasticities in Less-Developed Economies: Implications for Microfinance
Dean S. Karlan and Jonathan Zinman
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| Article Citation |
Karlan, Dean S., and Jonathan Zinman. 2008. "Credit Elasticities in Less-Developed Economies: Implications for Microfinance." American Economic Review, 98(3): 1040–68.
DOI:10.1257/aer.98.3.1040
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| Abstract |
Policymakers often prescribe that microfinance institutions increase
interest rates to eliminate their 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 steeper 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.
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| Additional Materials |
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| Authors |
Karlan, Dean S. (Yale U)
Zinman, Jonathan (Dartmouth College)
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| JEL Classifications |
G21: Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
O15: Economic Development: Human Resources; Human Development; Income Distribution; Migration
O16: Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
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