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Competition, Loan Rates and Information Dispersion in Microcredit Markets

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  • Andréas Heinen
  • Malika Hamadi
  • Guillermo Baquero
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    Abstract

    We describe the competitive environment of microcredit markets globally and we study the effects of competition on loan rates of microfinance institutions (MFIs). We use a new database from rating agencies, covering 379 for-profit and nonprofit MFIs in 67 countries over 2002-2008. First, we find that nonprofits are relatively insensitive to concentration changes, while for-profits charge significantly lower rates in less concentrated markets. We control for interest rate ceilings and other country-specific factors. Second, we find competitive pressures on nonprofits from increased for-profit market share. Third, we show that the effects of concentration are consistent with an information dispersion mechanism.

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    Bibliographic Info

    Paper provided by Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia in its series Working Paper CRENoS with number 201314.

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    Date of creation: 2013
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    Handle: RePEc:cns:cnscwp:201314

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    Related research

    Keywords: nonprofit institutions; microfinance; Loan rates; information dispersion; bank competition;

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    1. Hirth, Richard A., 1999. "Consumer information and competition between nonprofit and for-profit nursing homes," Journal of Health Economics, Elsevier, vol. 18(2), pages 219-240, April.
    2. Cull, Robert & Demirguc-Kunt, Asli & Morduch, Jonathan, 2009. "Banks and microbanks," Policy Research Working Paper Series 5078, The World Bank.
    3. Beck, Thorsten & Demirguc-Kunt, Asli & Martinez Peria, Maria Soledad, 2005. "Reaching out : access to and use of banking services across countries," Policy Research Working Paper Series 3754, The World Bank.
    4. Martinez Peria, Maria Soledad & Mody, Ashoka, 2004. "How Foreign Participation and Market Concentration Impact Bank Spreads: Evidence from Latin America," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 511-37, June.
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    16. Bert Balk, 2001. "Scale Efficiency and Productivity Change," Journal of Productivity Analysis, Springer, vol. 15(3), pages 159-183, May.
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    18. Peltzman, Sam, 1977. "The Gains and Losses from Industrial Concentration," Journal of Law and Economics, University of Chicago Press, vol. 20(2), pages 229-63, October.
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    20. Robert Marquez, 2002. "Competition, Adverse Selection, and Information Dispersion in the Banking Industry," Review of Financial Studies, Society for Financial Studies, vol. 15(3), pages 901-926.
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