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Do microfinance lenders easily reach an optimal welfare?

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  • Sandra, Kendo

Abstract

Market segmentation characterized by price heterogeneity appears as a failure of classical view of market equilibrium. We suppose that an existence of specific asset pricing determines the wealth level of lenders. In microfinance, we look at the linkages between the welfare of lenders and market segmentation degree. For that, we used a maximization program where a lender utility function is defined. One of the results is that high number of lenders determines their portfolio diversification capacity. In a context of price inelasticity and price discrimination of financial demand for microfinance products, the microfinance market appears as highly segmented but not highly efficient if we consider lenders’ returns. Moreover, an increase of average yield and average amount of initial loans positively improve the utility level of lenders. So, the improvement of microfinance lenders welfare is probable, but highly constrained by the behavior of some important financial factors.

Suggested Citation

  • Sandra, Kendo, 2016. "Do microfinance lenders easily reach an optimal welfare?," MPRA Paper 70229, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:70229
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    References listed on IDEAS

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    More about this item

    Keywords

    Market segmentation; microfinance; lender utility function; asset pricing and lender welfare;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General

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