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Formal microlending and adverse (or non-existent) selection: A case study of shrimp farmers in Bangladesh
Department of Economics, Umeå University.
Department of Economics, Umeå University.
International Institute for Environment and Development.
Department of Economics, University of Gothenburg.ORCID iD: 0000-0001-7206-6568
2011 (English)In: Applied Economics, ISSN 0003-6846, E-ISSN 1466-4283, Vol. 43, no 28, p. 4203-4213Article in journal (Refereed) Published
Abstract [en]

Microcredit schemes have become a popular means of improving smallholders’ access to credit and making long term investment possible. However, it remains to be explored whether the current microcredit schemes are more successful than earlier formal small scale lending in identifying successful borrowers. We studied shrimp farming in a rural region in Bangladesh where formal microlending is well established, but where more expensive informal microlending coexists with the formal schemes. Farmers – both those who exclusively use formal loans and those who also use informal loans – remain credit-constrained; both types overutilize labour in order to reduce the need for working capital. However, the credit constraint is actually milder for the informal borrowers: the implicit shadow price of working capital is substantially higher in the group that only takes formal loans than in the group that also uses informal loans. These results suggest that informal lenders – with their closer ties to the individual farmers – remain more successful in identifying those smallholder farmers that are most likely to use the borrowed funds successfully. Informal lenders have an information advantage that formal microlenders lack: the latter need to find routes to access this information in order for formal microcredit schemes to succeed.

Place, publisher, year, edition, pages
2011. Vol. 43, no 28, p. 4203-4213
Identifiers
URN: urn:nbn:se:ltu:diva-7496DOI: 10.1080/00036846.2010.491444Local ID: 5e5049f3-aebf-44d6-ad64-4cce660ade6bOAI: oai:DiVA.org:ltu-7496DiVA, id: diva2:980386
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Environment for Development
Note
Upprättat; 2011; 20141202 (jessta)Available from: 2016-09-29 Created: 2016-09-29 Last updated: 2017-11-24Bibliographically approved

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Andersson, CamillaStage, Jesper

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CiteExportLink to record
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Citation style
  • apa
  • harvard1
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  • vancouver
  • Other style
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  • de-DE
  • en-GB
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  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
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  • asciidoc
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