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Expansion and welfare in microfinance: A screening model

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  • Lahkar, Ratul
  • Pingali, Viswanath

Abstract

The expansion of microfinance has triggered concerns of rising indebtedness, and higher default and interest rates. Using a screening model, we show that even if interest and default rates increase due to expansion, borrower welfare may improve. This is because: (i) all borrowers previously denied credit can obtain loans, and (ii) screening costs for pre-existing borrowers go down. Hence, policies that seek to regulate interest and screening levels can be counterproductive.

Suggested Citation

  • Lahkar, Ratul & Pingali, Viswanath, 2016. "Expansion and welfare in microfinance: A screening model," Economic Modelling, Elsevier, vol. 53(C), pages 1-7.
    • Handle: RePEc:eee:ecmode:v:53:y:2016:i:c:p:1-7
    DOI: 10.1016/j.econmod.2015.11.012
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    Cited by:

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    2. Wijesiri, Mahinda, 2016. "Weathering the storm: ownership structure and performance of microfinance institutions in the wake of the global financial crisis," Economic Modelling, Elsevier, vol. 57(C), pages 238-247.
    3. Saxena, Vibhor & Bindal, Ishaan & LeMay-Boucher, Philippe, 2020. "Social groups and credit shocks: Evidence of inequalities in consumption smoothing," Economic Analysis and Policy, Elsevier, vol. 68(C), pages 311-326.
    4. Nitin Navin & Pankaj Sinha, 2019. "Market Structure and Competition in the Indian Microfinance Sector," Vikalpa: The Journal for Decision Makers, , vol. 44(4), pages 167-181, December.
    5. Raihan, Selim & Osmani, S.R. & Khalily, M.A. Baqui, 2017. "The macro impact of microfinance in Bangladesh: A CGE analysis," Economic Modelling, Elsevier, vol. 62(C), pages 1-15.
    6. Zhao Ding & Awudu Abdulai, 2020. "An Analysis of the Factors Influencing Choice of Microcredit Sources and Impact of Participation on Household Income," Journal of International Development, John Wiley & Sons, Ltd., vol. 32(4), pages 505-525, May.
    7. Shirley J. Ho & Sushanta K. Mallick, 2017. "Does Institutional Linkage of Bank-MFI Foster Inclusive Financial Development Even in the Presence of MFI Frauds?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 64(3), pages 283-309, July.

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