GEOGRAPHICAL DISTANCE AND MORAL HAZARD IN MICROCREDIT: EVIDENCE FROM COLOMBIA

Authors

  • Andrea F. Presbitero,

    Corresponding author
    1. Department of Economics, Università Politecnica delle Marche, Money and Finance Research group (MoFiR) and Centre for Macroeconomic and Finance Research (CeMaFiR), Italy
    • Correspondence to: Andrea F. Presbitero, Department of Economics, Università Politecnica delle Marche, Money and Finance Research group (MoFiR) and Centre for Macroeconomic and Finance Research (CeMaFiR), Italy.

      E-mail: a.presbitero@univpm.it

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  • Roberta Rabellotti

    1. Department of Political and Social Sciences, Università di Pavia, Italy
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  • This paper is the product of a research project conducted in 2005–2006 by the University of Bergamo, the Università del Piemonte Orientale and the Giordano Dell'Amore Foundation, with the sponsorship of Fondazione CRT of Turin, coordinated by Roberta Rabellotti and Laura Viganò.

Abstract

Recent years have seen an intense and critical debate about the impact of microcredit on entrepreneurial activities and poor households' welfare. This paper suggests that information asymmetries in the ex post loan arrangement between the microfinance institution and local borrowers could partially explain the limited impact of microcredit. The physical distance separating borrowers from the microfinance institution could be considered as a proxy of agency costs, increasing the costs of monitoring and easing moral hazard. The estimation of the effect of distance on the borrower's self-assessed outcome of a microcredit project in Colombia confirms the presence of moral hazard in the microcredit market, with agency costs increasing with geographical distance. Copyright © 2013 John Wiley & Sons, Ltd.

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