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Keywords:

  • microfinance;
  • financial liberalisation;
  • asymmetric information

Abstract

In recent financial liberalisation debates, increasing attention has been paid to the role of financial intermediation on the economy. Little research addressing the behaviour of bank lending interest rates under a financial liberalisation system has been articulated. This paper, therefore, draws a parallel between a completely liberalised microfinance and independent banks under financial liberalisation to indicate that in the presence of imperfect information there is a high probability of banks exhibiting a monopolistic behaviour. Copyright © 2008 John Wiley & Sons, Ltd.