State Intervention and the (Micro)Credit Market in Developed Countries: Loan Guarantee and Business Development Services
AbstractWe 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.
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Date of creation: Apr 2013
Date of revision:
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microcredit; loan guarantee; business development services; microfinance institution;
Other versions of this item:
- Renaud Bourlès & Anastasia Cozarenco, 2013. "State intervention and the (micro)credit market in developed countries: loan guarantee and business development services," Working Papers CEB, ULB -- Universite Libre de Bruxelles 13-019, ULB -- Universite Libre de Bruxelles.
- 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, Marseille, France, revised Apr 2013.
- 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 and Pricing - - - Rationing; Licensing
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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.:
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- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, American Economic Association, vol. 71(3), pages 393-410, June.
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