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Micro-finance Competition: Motivated Micro-lenders, Double-dipping and Default

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  • Brishti Guha

    ()
    (Department of Economics, Singapore Management University, 90 Stamford Road, Singapore 178903)

  • Prabal Roy Chowdhury

Abstract

We develop a tractable model of competition among motivated MFIs. We find that equilibria may or may not involve double-dipping (and consequently default), with there being double-dipping whenever the MFIs are very profit-oriented. Moreover, in an equilibrium with double-dipping, borrowers who double-dip are actually worse off compared to those who do not. Further, for intermediate levels of motivation, there can be multiple equilibria, with a double-dipping equilibrium co-existing with a no default equilibrium. Interestingly, an increase in MFI competition can lower efficiency, as well as increase the extent of double-dipping and default. Further, the interest rates may go either way, with the interest rate likely to increase if the MFIs are very motivated.

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Bibliographic Info

Paper provided by Singapore Management University, School of Economics in its series Working Papers with number 04-2012.

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Length: 40 pages
Date of creation: Jan 2012
Date of revision:
Publication status: Published in SMU Economics and Statistics Working Paper Series
Handle: RePEc:siu:wpaper:04-2012

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Keywords: Micro-finance competition; motivated MFIs; double-dipping; default;

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References

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Citations

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Cited by:
  1. Guha, Brishti & Chowdhury, Prabal Roy, 2013. "Micro-finance competition: Motivated micro-lenders, double-dipping and default," Journal of Development Economics, Elsevier, vol. 105(C), pages 86-102.
  2. Janda, Karel & Zetek, Pavel, 2014. "Survey of Microfinance Controversies and Challenges," MPRA Paper 56657, University Library of Munich, Germany.
  3. Chowdhury, Shyamal & Chowdhury, Prabal Roy & Sengupta, Kunal, 2014. "Sequential lending with dynamic joint liability in micro-finance," Working Papers 2014-07, University of Sydney, School of Economics.
  4. Janda, Karel & Zetek, Pavel, 2014. "Mikrofinanční Revoluce: Aktuální Kontroverze A Výzvy
    [Microfinance Revolution: Recent Controversies And Challenges]
    ," MPRA Paper 54098, University Library of Munich, Germany.

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