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State Intervention and the (Micro) Credit Market in Developed Countries: Loan Guarantee and Business Development Services

Author

Listed:
  • Renaud Bourlès

    (Ecole Centrale Marseille (Aix-Marseille School of Economics), CNRS & EHESS)

  • Anastasia Cozarenco

    (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS)

Abstract

We analyze in this paper how various forms of State intervention can impact the microcredit market in developed countries. Using a simple model where entrepreneurs borrow without collateral, we study the effect of different policies on microfinance institutions' lending behavior. We first introduce state intervention through the loan guarantee and show that, not surprisingly, it increases the number of entrepreneurs receiving a loan. However, after modeling business development services provided by the microfinance institution, we show that the government loan guarantee can have a counterproductive effect by reducing the number of entrepreneurs benefiting from such services. We therefore analyze an alternative policy: the subsidization of business development services by the State. We then provide a condition under which - for fixed government expenditures - such subsidies are more effective (in terms of outreach) than loan guarantees.

Suggested Citation

  • Renaud Bourlès & Anastasia Cozarenco, 2013. "State Intervention and the (Micro) Credit Market in Developed Countries: Loan Guarantee and Business Development Services," AMSE Working Papers 1325, Aix-Marseille School of Economics, France, revised Apr 2013.
    • Handle: RePEc:aim:wpaimx:1325
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    Cited by:

    1. Renaud Bourlès & Anastasia Cozarenco & Dominique Henriet & Xavier Joutard, 2022. "Business Training with a Better-Informed Lender: Theory and Evidence from Microcredit in France," Annals of Economics and Statistics, GENES, issue 148, pages 65-108.
    2. Ashley Gunter & Kenneth Manuel, 2016. "A role for housing in development: Using housing as a catalyst for development in South Africa," Local Economy, London South Bank University, vol. 31(1-2), pages 312-321, February.
    3. Renaud Bourlès & Anastasia Cozarenco, 2018. "Entrepreneurial motivation and business performance: evidence from a French Microfinance Institution," Small Business Economics, Springer, vol. 51(4), pages 943-963, December.
    4. Marthe Uwamariya & Claudia Loebbecke & Stefan Cremer, 2019. "Mobile Banking Impacting the Performance of Microfinance Institutions: A Case Study from Rwanda," International Journal of Innovation and Technology Management (IJITM), World Scientific Publishing Co. Pte. Ltd., vol. 17(01), pages 1-18, December.

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    More about this item

    Keywords

    microcredit; loan guarantee; business development services; microfinance institution.;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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