| By: |
Dean Karlan (Economic Growth Center, Yale University);
Jonathan Zinman (Dartmouth College) |
| Abstract: |
The price elasticity of demand for credit has major implications for
macroeconomics, finance, and development. We present estimates of this
parameter derived from a randomized trial. The experiment was implemented by a
consumer microfinance lender in South Africa and identifies demand curves
that, while downward-sloping with respect to price, are flatter than recent
estimates in both developing and developed countries throughout most of a wide
price range. However, demand becomes highly price sensitive at
higher-than-normal rates. We discuss several interpretations of this kink and
present some related evidence. We also find that loan size is far more
responsive to changes in loan maturity than to changes in interest rate. This
pattern is more pronounced among lower income individuals, a comparative
static that has been observed in the United States as well and is consistent
with liquidity constraints that decrease with income. |
| Keywords: |
Credit Markets, Microfinance, Demand Elasticity, Development Finance, Maturity Elasticity, Consumer Credit |
| JEL: |
D1 D9 E2 G2 O1 |
| Date: |
2005–10 |
| URL: |
http://d.repec.org/n?u=RePEc:egc:wpaper:926&r=mfd |