Political Economy and Rural Loan Recovery: An Example for Bangladesh

The rural loan recovery problem in developing countries is frequently analyzed from borrowers and institutional perspectives. But a frequently overlooked problem is that borrowers often are discouraged to repay or institutions are not aggressive enough to recover loans because of political interventions of the government into rural financial markets to derive the benefits of getting re-elected. Failure to address this dimension in recovery analysis may lead to an incorrect prescription of policies. This paper provides an empirical analysis of how political interventions affect rural loan recovery in Bangladesh. The government in Bangladesh intervenes into rural loan allocation and recovery indirectly through financial policies - interest exemption, loan targeting, interest rates - and directly through local political leaders and government officials. The intensity of direct intervention is expected to increase during an election period. Four variables - inflation rate, election years, interest exemption years, and bank type - were included in the model. The empirical results showed that election, inflation rate, and bank type affect the loan recovery negatively, and interest exemption positively

Seasonal and extreme poverty in Bangladesh : evaluating an ultra-poor microfinance project

Microfinance is often criticized for not adequately addressing seasonality and hard-core poverty. In Bangladesh, a program known as PRIME was introduced in 2006 to address both concerns. Unlike regular microfinance, PRIME introduces a microfinance scheme that offers a flexible repayment schedule and consumption smoothing, as well as production, loans. It targets the ultra-poor, many of whom are also seasonally poor, with a severe inability to smooth consumption during certain months of the year. Besides providing loans, PRIME offers extension and training services. This paper uses a quasi-experimental survey design to evaluate PRIME against regular microfinance programs. The results show that PRIME is more effective than regular microfinance in reaching the ultra-poor, as well as the seasonal poor. PRIME also helps reduce seasonal deprivation and extreme poverty. Although the program has demonstrated its promise, it is too early to conclude whether the accrued benefits are large enough to contain both seasonal and chronic poverty on a sustained basis.Rural Poverty Reduction,Regional Economic Development,Food&Beverage Industry,Debt Markets

Dynamics of market share in the microfinance industry in Bangladesh

We discuss evidence that the microcredit industry in Bangladesh has seen emergence of large variations in the size of the microfinance institutions operating in the market-- on the one hand, there are large national-level MFIs, while on the other hand, small localized MFIs operating only within the confines of a small area. Data from a recent survey of Pathrail union in Tangail district, a seasoned place for microcredit, reveals that within the local market competition is becoming more and more intense over time between established national-level MFIs and newly emerging local-level MFIs for market shares in terms of loan amount as well as borrowed members. Data reveals that there is market segmentation where some borrowers and MFIs opt for a package of low interest rates tied with low amount of loan disbursed and some other borrowers and MFIs settle for a package of high interest rates tied with high amount of loan disbursed. A Tobit regression estimation of member market shares in village micro credit market shows that size of the MFI, years of operation in the village, average loan size, deposit interest rates, loan amount disbursed for unique loan purposes (i.e., housing loan) are key determinants in determining MFI shares of a village microcredit market.Microcredit; Market Share; Product and Provider Characteristics of Microcredit

Bank Branches and Rural Deposits: Evidence from Bangladesh

Revised August, 1990. Originally released as ESO 1462, May, 1988

The Determinants of Rural Deposits in Bangladesh

A simultaneous relationship between interest-bearing deposits and rural bank branch density exists in Bangladesh. Permanent income directly affects bank density and indirectly affects deposits. Bank density and availability of roads and vehicles affect depositor behavior through their effect on transaction costs. Transitory income and literacy also positively affect deposits

Are Commercial Banks Really More Efficient than Agricultural Development Banks? Evidence from Bangladesh

Previous studies have argued that commercial banks are more efficient in making and recovering loans than are development banks. Few studies, however, directly compare the efficiency of the two types of banks operating in the same market area. This study in Bangladesh made such a comparison. A normalized profit function was estimated based on the data collected from rural bank branches for the years 1987 and 1988. The results showed that the nationalized commercial bank branches were relative price efficient with respect to wages, while the development bank branches were relative price efficient with respect to deposit interest rates. The development bank branches were relative technical efficient with respect to loans made, while there was no technical efficiency differences between the two bank types with respect to deposits. These results suggest that the issue of relative bank efficiency is unique to each country and cannot be easily generalized