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Microfinance in Times of Crisis: The Effects of Competition, Rising Indebtedness, and Economic Crisis on Repayment Behavior

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Abstract

This paper analyzes repayment determinants for loans from Caja Los Andes, a Bolivian microlender. The analysis focuses on the influence of recent changes in the Bolivian microfinance market. In particular, we examine the effects of the rapidly growing supply of funds for micro-loans, the increasing competition, a rising level of indebtedness among micro-entrepreneurs, and the recent economic crisis. Our results show a two-fold influence structure of competition and indebtedness. Firstly, clients with loans from multiple sources at the same time are found to be more likely to default than others. Secondly, clients with given characteristics have an overall better repayment behavior in areas with higher competition and a higher supply of micro-loans.

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File URL: http://www.vwl.uni-mannheim.de/gk/wp/gkwp-2001-06.pdf
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File URL: http://www.vwl.uni-mannheim.de/gk/wp/gkwp-2001-06.ps
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Bibliographic Info

Paper provided by Post Graduate Programme "Allocation on Financial Markets", University of Mannheim in its series GK working paper series with number 2001-06.

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Length: 50 pages
Date of creation: Jul 2001
Date of revision: Nov 2001
Handle: RePEc:xrs:gkwopa:2001-06

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Keywords: Microfinance; Arrears Rates; Over-indebtedness; Credit Scoring.;

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References

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Cited by:
  1. Leonardo Becchetti & Stefano Castriota & Pierluigi Conzo, 2012. "Bank strategies in catastrophe settings: empirical evidence and policy suggestions," Econometica Working Papers wp43, Econometica.
  2. Brishti Guha & Prabal Roy Chowdhury, 2012. "Micro-finance Competition: Motivated Micro-lenders, Double-dipping and Default," Working Papers 04-2012, Singapore Management University, School of Economics.
  3. Jessica Schicks, 2012. "Over-Indebtedness in Microfinance – An Empirical Analysis of Related Factors on the Borrower Level," Working Papers CEB 12-017, ULB -- Universite Libre de Bruxelles.
  4. Salim, Mir M., 2013. "Revealed objective functions of Microfinance Institutions: Evidence from Bangladesh," Journal of Development Economics, Elsevier, vol. 104(C), pages 34-55.
  5. Jessica Schicks, 2011. "From a supply gap to a demand gap? The risk and consequences of over-indebting the underbanked," Working Papers CEB 11-046, ULB -- Universite Libre de Bruxelles.
  6. Mersland, Roy, 2009. "The Cost of Ownership in Microfinance Organizations," World Development, Elsevier, vol. 37(2), pages 469-478, February.
  7. Sk. Mahmudul Alam, Mahmud, 2012. "Does Microcredit Create Over-indebtedness?," MPRA Paper 39124, University Library of Munich, Germany.
  8. Khandker, Shahidur R. & Faruqee, Rashid & Samad, Hussain A., 2013. "Are microcredit borrowers in Bangladesh over-indebted ?," Policy Research Working Paper Series 6574, The World Bank.

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