| dc.description.abstract | In this paper we test the hypothesis of whether the presence of increasing number of
microfinance institutions leads to over-borrowing. Some recent theoretical literature
suggests that, in a joint liability setting, borrowers are more likely to borrow from
multiple sources – without increasing their loan size – in order to better manage
their risk due to partner default. Here, we test this hypothesis by utilizing a unique
primary dataset generated through comprehensive surveys conducted in eight
districts of Andhra Pradesh. Results suggest that over-borrowing and multiple loans
are not necessarily synonymous. More broadly, as the number of credit agencies in a
village increases, the average loan burden of villagers need not increase.
Furthermore, there is an evidence of substitution from informal sources of credit to
formal ones. Such substitution is greater with addition of microfinance institutions
than with the addition of other formal lending agencies. Finally, we also find that
the joint liability setup ensures that individuals at a greater risk of non-repayment
are discouraged from obtaining MFI loans. | en_US |
