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Is Multiple Borrowing a Bad Sign? Evidence from Bangladesh and India

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Economic and Social Development of Bangladesh

Abstract

In this chapter, we examine household panel data from Bangladesh and India, comparing unique settings of microcredit programs in these two countries to characterize the cause and nature of overlapping borrowing. Empirical findings from Bangladeshi data seem to show consistently “good” overlapping borrowing and the use of small and inflexible loans from multiple microfinance institutions (MFIs) to satisfy large borrowing demand. In contrast, the overall findings from India may support the interpretation of overlapping borrowings as a Ponzi scheme or missing targets. These observed differences between Bangladesh and India might be attributed to the differences in corporate governance in microfinance, as all MFIs in Bangladesh except Grameen Bank are non-governmental organizations (NGOs), whereas a significant proportion of Indian MFIs are regulated for-profit commercial financial institutions.

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Notes

  1. 1.

    It is known that these incidents against MFI are motivated by political factors. For example, the Krishna District Collector aimed to pursue his own financial inclusion agenda (Banerjee and Duflo 2011). However, one rationale for this incident is that “…the incentives at the micro level were geared towards pushing clients to their desperate measures…. In many other cases, a government study found that MFI agents had urged non-performing clients to commit suicide; under the loan terms, borrower’s debts were covered by insurance in case of death…. (Mader 2013, 285).”

  2. 2.

    More detailed results are available from the authors.

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Author information

Authors and Affiliations

  1. University of Tokyo, Tokyo, Japan

    Yasuyuki Sawada

  2. Hitotsubashi University, Tokyo, Japan

    Mari Tanaka

  3. Bangladesh Institute of Development Studies, Dhaka, Bangladesh

    Minhaj Mahmud

Authors
  1. Yasuyuki Sawada
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  2. Mari Tanaka
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  3. Minhaj Mahmud
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Editor information

Editors and Affiliations

  1. Faculty of Economics, University of Tokyo, Tokyo, Japan

    Yasuyuki Sawada

  2. Bangladesh Institute of Development Studies (BIDS), Dhaka, Bangladesh

    Minhaj Mahmud

  3. Japan International Cooperation Agency Research Institute, Tokyo, Japan

    Naohiro Kitano

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Sawada, Y., Tanaka, M., Mahmud, M. (2018). Is Multiple Borrowing a Bad Sign? Evidence from Bangladesh and India. In: Sawada, Y., Mahmud, M., Kitano, N. (eds) Economic and Social Development of Bangladesh. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-63838-6_10

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