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Microfinance and Investment: A Comparison between Group Lending, Bank Lending and Informal Credit

49 Pages Posted: 22 Dec 2006 Last revised: 12 Mar 2008

Lucia Dalla Pellegrina

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS)

Abstract

Using data from a World Bank survey carried out in Bangladesh during the period 1991-1992, this paper compares the impact of microfinance programs and other types of credit agreements on households' investment in productive activities. We find that group-lending positively affects variable input expenditure while fixed assets are more likely to be financed through bank credit. These features characterize the non agricultural sector, while farmers seem to rely on informal loans. Results are not a consequence of the differences in the amount borrowed, interest rates, collateral, and borrowers' wealth. This provides evidence that non-measurable determinants of credit agreements, such as for example liability, sanctions, repayment schedules, and non-credit services, play a considerable role in determining households' attitudes towards different investment choices.

Keywords: Microfinance, Banks, Informal lending, Investment

JEL Classification: O16, O17, G21

Suggested Citation

Dalla Pellegrina, Lucia, Microfinance and Investment: A Comparison between Group Lending, Bank Lending and Informal Credit. Available at SSRN: https://ssrn.com/abstract=953231 or http://dx.doi.org/10.2139/ssrn.953231

Lucia Dalla Pellegrina (Contact Author)

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

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