Competition and Wide Outreach of Microfinance Institutions
AbstractWhile the theoretical literature has found that intense competition leads to the poorest borrowers dropping out of the microfinance market, we do not possess sufficient research accumulated for empirical analysis in this field. This paper examines the empirical relationship between competition and wide outreach—which measures how poor-borrower microfinance institutions (MFIs) provide loans—and its accompanying effect, the impact of competition on financial self-sufficiency (FSS), using abundant financial data for socially-motivated MFIs between 2003 and 2006. We provide the first detailed econometric analysis in this regard focusing on socially-motivated MFIs in developing countries around the world. This paper finds that intense competition worsens the wide outreach, showing that the poorest borrowers are dropped from the microfinance lending portfolio. Moreover, the empirical result indicates that the adverse effect of competition on wide outreach declines as MFIs gain experience. Furthermore, this paper confirms that competition does not worsen financial self-sufficiency (FSS) and hence does not raise subsidy dependence.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 17143.
Date of creation: 07 Sep 2009
Date of revision:
Competition; Wide Outreach; Microfinance Institutions;
Find related papers by JEL classification:
- O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-09-11 (All new papers)
- NEP-MFD-2009-09-11 (Microfinance)
- NEP-MIC-2009-09-11 (Microeconomics)
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