Rethinking BankingArmendariz – Morduch (Chap. 1)

Week 1Lecture 2

Structure of this class• Credit: An Overview

• Demand side

• Supply side

• Credit Constraints Through the Lens Of Neoclassical Theory

• Justifying Intervention

• Interventions via Development Banks

• Conclusion: The Microfinance Way of Looking at Interventions

Credit: An Overview

Demand side

Supply side

Neoclassical theory

Two reasons why this may not happen

Classical example:

Irfan Aleem (1990): 78% in Pakistan

Justifying InterventionTwo reasons: 1) Efficiency and 2) Distribution

Justifying Interventions In Microfinance

Against a background where interventions in credit markets could not be justified neither on efficiency nor on re-distributive grounds

Microfinance:

GLJR lower “agency costs” affordable interest rates subsidies to disseminate the GLJR

Infant industry argument

Technical assistance for lowering “transaction costs”

Increased competition via “smart subsidies” Next class: A-M (Chapter

2)