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Market Structure and Borrower Welfare in Microfinance

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  • Thiemo Fetzer
  • Maitreesh Ghatak
  • Jonathan de Quidt

Abstract

Motivated by recent controversies surrounding the role of commercial lenders in microfinance, we analyze borrower welfare under different market structures,considering a benevolent non-profit lender, a for-profit monopolist, and a competitive credit market. To understand the magnitude of the effects analyzed, we simulate the model with parameters estimated from the MIX Market database. Our results suggest that market power can have severe implications for borrower welfare, while despite possible information frictions competition typically delivers similar borrower welfare to non-profit lending. In addition, for-profit lenders are less likely to use joint liability than non-profits.

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Bibliographic Info

Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Economic Organisation and Public Policy Discussion Papers Series with number 40.

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Date of creation: Sep 2012
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Handle: RePEc:cep:stieop:40

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Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp

Related research

Keywords: microfinance; market power; for-profit; social capital;

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References

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Cited by:
  1. Giné, Xavier & Karlan, Dean S., 2014. "Group versus individual liability: Short and long term evidence from Philippine microcredit lending groups," Journal of Development Economics, Elsevier, vol. 107(C), pages 65-83.
  2. Baland, Jean-Marie & Somanathan, Rohini & Wahhaj, Zaki, 2011. "Repayment incentives and the distribution of gains from group lending," CEPR Discussion Papers 8197, C.E.P.R. Discussion Papers.
  3. de Quidt, Jonathan & Fetzer, Thiemo & Ghatak, Maitreesh, 2013. "Group Lending Without Joint Liability," CEPR Discussion Papers 9578, C.E.P.R. Discussion Papers.

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