Do interest rates matter? Credit demand in the Dhaka slums

Dehejia, R. and Montgomery, H. and Morduch, J. (2012) Do interest rates matter? Credit demand in the Dhaka slums. Journal of Development Economics, 97 (2). pp. 437-449.

[img] PDF - Published Version
Restricted to ICRISAT researchers only


“Best practice” in microfinance holds that interest rates should be set at profit-making levels, based on the belief that even poor customers favor access to finance over low fees. Despite this core belief, little direct evidence exists on the price elasticity of credit demand in poor communities. We examine increases in the interest rate on microfinance loans in the slums of Dhaka, Bangladesh. Using unanticipated between-branch variation in prices, we estimate interest elasticities from − 0.73 to − 1.04, with our preferred estimate being at the upper end of this range. Interest income earned from most borrowers fell, but interest income earned from the largest increased, generating overall profitability at the branch level

Item Type: Article
Uncontrolled Keywords: Microcredit; Interest rates; Loan demand; Credit constraints
Author Affiliation: New York University, United States
Subjects: Social Sciences
Divisions: General
Depositing User: Ms K Syamalamba
Date Deposited: 11 Mar 2014 07:25
Last Modified: 23 Apr 2014 10:29
Official URL:

Actions (login required)

View Item View Item