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Lending Technologies, Competition, and Consolidation in the Market for Microfinance in Bolivia

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Author Info
Jonathan Conning () (Hunter College, Department of Economics)
Sergio Navajas
Claudio Gonzalez-Vega

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Abstract

Innovations in lending technologies and market saturation have transformed La Paz, Bolivia into one of the most rapidly changing and competitive microfinance markets in the world. Two lenders stand out in this context: the pioneer BancoSol, which first entered and profitably expanded the loan market with a group liability loans, and the later entrant Caja Los Andes, which offered individual liability loans using costlier screening methods. In this paper we use a simple model of moral hazard and adverse selection to describe and analyze the nature of the competition amongst these lenders. We focus on how the terms of different loan contracts change with competition and how this affects borrowers' decisions about diligence and repayment. The hypothesized patterns of behavior are tested and shown to be consistent with empirical evidence from loan records and household survey data.

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Publisher Info
Paper provided by Hunter College: Department of Economics in its series Hunter College Department of Economics Working Papers with number 213.

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Length: 40 pages
Date of creation: 01 Apr 2003
Date of revision:
Handle: RePEc:htr:hcecon:213

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Related research
Keywords: Microfinance; Financial intermediation; poverty.;

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Find related papers by JEL classification:
D0 - Microeconomics - - General
G1 - Financial Economics - - General Financial Markets

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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. Ghatak, Maitreesh & Guinnane, Timothy W., 1999. "The economics of lending with joint liability: theory and practice," Journal of Development Economics, Elsevier, vol. 60(1), pages 195-228, October. [Downloadable!] (restricted)
    Other versions:
  2. van Tassel, Eric, 2002. "Signal Jamming in New Credit Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 469-90, May.
  3. Hoff, Karla & Stiglitz, Joseph E., 1997. "Moneylenders and bankers: price-increasing subsidies in a monopolistically competitive market," Journal of Development Economics, Elsevier, vol. 52(2), pages 429-462, April. [Downloadable!] (restricted)
    Other versions:
  4. Navajas, Sergio & Schreiner, Mark & Meyer, Richard L. & Gonzalez-vega, Claudio & Rodriguez-meza, Jorge, 2000. "Microcredit and the Poorest of the Poor: Theory and Evidence from Bolivia," World Development, Elsevier, vol. 28(2), pages 333-346, February. [Downloadable!] (restricted)
    Other versions:
  5. 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)
  6. Kranton, Rachel E. & Swamy, Anand V., 1999. "The hazards of piecemeal reform: british civil courts and the credit market in colonial India," Journal of Development Economics, Elsevier, vol. 58(1), pages 1-24, February. [Downloadable!] (restricted)
  7. Petersen, Mitchell A & Rajan, Raghuram G, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 407-43, May. [Downloadable!] (restricted)
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  8. Jaffee, Dwight & Stiglitz, Joseph, 1990. "Credit rationing," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 16, pages 837-888 Elsevier. [Downloadable!] (restricted)
  9. Gonzalez-Vega, Claudio & Meyer, Richard L. & Navajas, Sergio & Schreiner, Mark & Rodriguez-Meza, Jorge & Monje, Guillermo F., 1996. "Microfinance Market Niches And Client Profiles In Bolivia," Economics and Sociology Occasional Papers 28332, Ohio State University, Department of Agricultural, Environmental and Development Economics. [Downloadable!]
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  10. Conning, Jonathan, 1999. "Outreach, sustainability and leverage in monitored and peer-monitored lending," Journal of Development Economics, Elsevier, vol. 60(1), pages 51-77, October. [Downloadable!] (restricted)
  11. 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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Cited by:
(explanations, 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. Dorothea Schäfer & Boriss Siliverstovs & Eva Terberger, 2005. "Banking Competition, Good or Bad?: The Case of Promoting Micro and Small Enterprise Finance in Kazakhstan," Discussion Papers of DIW Berlin 479, DIW Berlin, German Institute for Economic Research. [Downloadable!]
  2. Paolo Casini, 2008. "Competition and Altruism in Microcredit Markets," ECARES Working Papers 2008_037, Université Libre de Bruxelles, Ecares. [Downloadable!]
  3. Katchova, Ani L. & Miranda, Mario J. & Gonzalez-Vega, Claudio, 2001. "A Dynamic Model Of Microlending In The Developing Countries," 2001 Annual meeting, August 5-8, Chicago, IL 20635, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  4. Alain de Janvry & Craig McIntosh & Elisabeth Sadoulet, 2006. "The supply and demand side impacts of credit market information," Proceedings, Federal Reserve Bank of San Francisco, issue Nov. [Downloadable!]
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