Deadweight Loss in the Interest-based and the Interest-Free (Islamic) Microfinance Programs: A Comparative Analysis

Year 2019, Volume: 5 Issue: 2, 49 - 71, 31.07.2019

Basharat Hossain

https://doi.org/10.25272/ijisef.509230

Abstract

This paper
illustrates the deadweight loss in the Interest-based Microfinance
program compared to the
interest-free or Islamic Microfinance regarding ‘consumer’ surplus, producer’ surplus, loan price and
the quantity demanded of Microfinance loan’ . It has been
prepared based on the secondary data on the twenty Micro finance institutions
of the Nine countries of the world and world micro finance data. This paper
employs the numerical example and graphical presentation to measure the dead
weight loss. This
paper finds that, consumer’
surplus is at least 3 times lower in the conventional
Microfinance program; producer’
surplus is higher in the Islamic Microfinance than the conventional
Microfinance. The loan price is at least 142%-241% higher
in conventional Microfinance than the Islamic Microfinance. Besides,
the quantity demanded of Microfinance loan is higher in the Islamic
Microfinance than the conventional Microfinance.

Key Words: Deadweight
Loss, Interest-based Microfinance, Interest-free Microfinance, Islamic
Microfinance, Consumer and Producer Surplus, Loan price

KAUJIE Code: H15,
J31                              

JEL Code: G21,
I31, Z12

Keywords

Deadweight Loss, Interest-based Microfinance, Interest-free Microfinance, Islamic Microfinance, Consumer and Producer Surplus

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