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Competition and Altruism in Microcredit Markets

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Author Info
Paolo Casini
Abstract

We analyze the effects of entry in a previously monopolistic microcredit market characterized by asymmetric information and by institutions that offer only one type of contract. We consider different behavioral assumptions concerning the Incumbent and study their influence on equilibrium predictions. We show that competition leads to contract differentiation but can make borrowers worse off. Moreover, the screening process creates a previously unexplored source of rationing. We show that if the incumbent institution is altruistic, rationing is reduced and that this can positively affect the competitor's profit.

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File URL: http://www.ecares.org/index.php?option=com_docman&task=doc_download&gid=51&Itemid=204
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File Function: First version, 2008
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Publisher Info
Paper provided by Université Libre de Bruxelles, Ecares in its series ECARES Working Papers with number 2008_037.

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Length: 40 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:eca:wpaper:2008_037

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Related research
Keywords: Microfinance; Competition; Altruism; Differentiation; Credit Rationing;

Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. J. Miguel Villas-Boas & Udo Schmidt-Mohr, 1999. "Oligopoly with Asymmetric Information: Differentiation in Credit Markets," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 375-396, Autumn. [Downloadable!] (restricted)
  2. Karlan, Dean S. & Zinman, Jonathan, 2007. "Credit Elasticities in Less-Developed Economies: Implications for Microfinance," CEPR Discussion Papers 6071, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. McIntosh, Craig & Wydick, Bruce, 2005. "Competition and microfinance," Journal of Development Economics, Elsevier, vol. 78(2), pages 271-298, December. [Downloadable!] (restricted)
  4. Jonathan Conning & Sergio Navajas & Claudio Gonzalez-Vega, 2003. "Lending Technologies, Competition, and Consolidation in the Market for Microfinance in Bolivia," Hunter College Department of Economics Working Papers 213, Hunter College: Department of Economics. [Downloadable!]
    Other versions:
  5. Hoff, Karla & Stiglitz, Joseph E., 1998. "Moneylenders and bankers: price-increasing subsidies in a monopolistically competitive market," Journal of Development Economics, Elsevier, vol. 55(2), pages 485-518, April. [Downloadable!] (restricted)
    Other versions:
  6. Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December. [Downloadable!] (restricted)
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