No.216 Microfinance Competition and Multiple Borrowing: Evidence Using Panel Data from Bangladesh

This paper examines the causes and consequences of multiple borrowing in rural Bangladesh using long-term household and village panel data covering the years 2000 to 2014. Our empirical analysis reveals that sharply growing number of microfinance institutions (MFIs) in a wider set of villages over time, coincides with corresponding increase in household borrowing from multiple MFIs as well as households accessing loans generally. The climbing number of MFIs also explains the significant rises in the total values of household assets especially in the form of agricultural equipment. Although the increasing number of MFIs resulted in some households borrowing for the purposes of repaying previous loans, the fraction of such households is still relatively small. Overall, our results suggest that the majority of the cases of multiple borrowing are “healthy” or “solvent” overlapping loans that meet the large demand for credit for productive purposes.

Keywords: Microfinance Institutions, Household Borrowing, Micro Business, Bangladesh