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GEOGRAPHICAL DISTANCE AND MORAL HAZARD IN MICROCREDIT: EVIDENCE FROM COLOMBIA
Author(s) -
Presbitero Andrea F.,
Rabellotti Roberta
Publication year - 2014
Publication title -
journal of international development
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.533
H-Index - 66
eISSN - 1099-1328
pISSN - 0954-1748
DOI - 10.1002/jid.2901
Subject(s) - microfinance , moral hazard , welfare , agency cost , loan , institution , proxy (statistics) , agency (philosophy) , economics , information asymmetry , business , economic growth , finance , political science , microeconomics , sociology , incentive , market economy , corporate governance , social science , machine learning , computer science , law , shareholder
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.