Rural and Financial Development for Inclusive Growth

Abstract

Chapter 2 focuses on the impact of Microfiance Institutions (MFIs) on informal credit markets. I construct a theoretical framework for an entrance of an MFI into a monopolistically competitive moneylenders’ market. Then it numerically compares the interest rates, coverages, and differences in social welfare for a market with and without an MFI. I also examine the impact of subsidies on an MFI. I found that moneylenders charge monopolistic interest rates for their borrowers within a close distance and increasingly competitive rates in the overlapping areas. Some low type borrowers, who are far away from the moneylenders, are excluded from access to credit. The MFI serves previously excluded people. The subsidy to the MFI enhances competition between the moneylenders and the MFI, which reduces the market interest rate and increases surplus of borrowers. Chapter 3 estimates how many default risks in the microfinance sector can be explained to have resulted from within-sector competition and the sector’s competition with the formal banking sector. Since MFIs’ enforcement method is vulnerable to increased competition, I empirically examine competition–stability linkage with country-level data. Results show that the microfinance sector’s within-sector competition and competition with the formal banking sector negatively influence MFI portfolio risks, but it varies by countries’ income levels. In lower- and upper-middle–income countries, bank competition increases MFI portfolio risks, while there is no effect on MFI portfolio risks in lowincome countries. MFI competition increases MFIs’ default risk across all income groups. Chapter 4 combines agronomic and economic considerations regarding the optimal timing of nitrogenous fertilizer. I set up a farmer’s profit maximization, and numerically determined the optimal splits, timings, and amounts of fertilizer applications while considering the extra labor costs for additional rounds of fertilizer. The results show that the increase of yield from the additional split is larger than the additional cost of labor, except for the very small amount of N input. The result also shows that splitting nitrogen equally is suboptimal. Applying more nitrogen at the time of panicle initiation than at the active tillering stage increases yield over an equal split of the same amount of nitrogen.