The Elasticity of Demand for Microcredit: Evidence from Latin America
Development Policy Review, Forthcoming
37 Pages Posted: 21 Jul 2010 Last revised: 5 Jun 2015
Date Written: April 30, 2015
Although microcredit demand is frequently assumed to be inelastic, understanding the price elasticity of demand for microcredit is exceptionally relevant in designing appropriate microfinance institution (MFI) financial products and policy. Using a unique survey instrument, this paper extracts loan demand schedules and elasticities of MFI borrowers in the Dominican Republic. We analyze the intensive margin of microcredit demand and find that client demand elasticities are not homogeneous and are correlated with certain borrower characteristics. Overall, results suggest that these micro-entrepreneurs, who have already entered the MFI market, have close to unit elastic demand for microcredit. The mean demand elasticity for our sample is -1.0.
Keywords: Microcredit, Demand elasticity
JEL Classification: G21, O16
Suggested Citation: Suggested Citation