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Refinancing MFIs with Market Power: Theory and Evidence

Author

Listed:
  • Lutz G. Arnold
  • Benedikt Booker
  • Gregor Dorfleitner
  • Michaela Röhe

Abstract

This paper presents a model of the complete microcredit financing chain investor MIV → MFI → micro-borrower, in which social-minded MIVs provide funds only to those MFIs which do not exploit their bargaining power towards micro-borrowers. The MFIs with the highest bargaining power do not use MIV capital, since eschewing their market power is most costly for them. Consistent with this prediction of the theoretical model, we find empirically that the net interest margin, as a measure of MFI market power, negatively affects the likelihood of using MIV finance. This lends support to the view that social criteria play an effective role in MIVs’ investment policies, thereby also impacting MFIs’ lending behavior.

Suggested Citation

  • Lutz G. Arnold & Benedikt Booker & Gregor Dorfleitner & Michaela Röhe, 2016. "Refinancing MFIs with Market Power: Theory and Evidence," Working Papers 162, Bavarian Graduate Program in Economics (BGPE).
    • Handle: RePEc:bav:wpaper:162_arnoldbookerdorfleitnerroehe
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    References listed on IDEAS

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    5. Jean-Marie De Corte & Marc Labie & Ludovic Urgeghe & Jean-Claude Vansnick, 2012. "Microfinance Investment Vehicles and Social Performance: Moving forward with the MACBETH Approach," Working Papers CEB 12-025, ULB -- Universite Libre de Bruxelles.
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    More about this item

    Keywords

    microfinance; microfinance investment vehicles; social returns;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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