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Competition and wide outreach of Microfinance Institutions

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  • Hisako Kai

    () (Kobe University)

Abstract

While 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.

Suggested Citation

  • Hisako Kai, 2009. "Competition and wide outreach of Microfinance Institutions," Economics Bulletin, AccessEcon, vol. 29(4), pages 2628-2639.
  • Handle: RePEc:ebl:ecbull:eb-09-00528
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    File URL: http://www.accessecon.com/Pubs/EB/2009/Volume29/EB-09-V29-I4-P15.pdf
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    References listed on IDEAS

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    2. Morduch, Jonathan, 2000. "The Microfinance Schism," World Development, Elsevier, vol. 28(4), pages 617-629, April.
    3. 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.
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    6. Sergio Navajas & Jonathan Conning & Claudio Gonzalez-Vega, 2003. "Lending technologies, competition and consolidation in the market for microfinance in Bolivia," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(6), pages 747-770.
    7. Craig McIntosh & Alain Janvry & Elisabeth Sadoulet, 2005. "How Rising Competition Among Microfinance Institutions Affects Incumbent Lenders," Economic Journal, Royal Economic Society, vol. 115(506), pages 987-1004, October.
    8. Robert Cull & Asli Demirguç-Kunt & Jonathan Morduch, 2007. "Financial performance and outreach: a global analysis of leading microbanks," Economic Journal, Royal Economic Society, vol. 117(517), pages 107-133, February.
    9. Shahidur R. Khandker, 2005. "Microfinance and Poverty: Evidence Using Panel Data from Bangladesh," World Bank Economic Review, World Bank Group, vol. 19(2), pages 263-286.
    10. McIntosh, Craig & Wydick, Bruce, 2005. "Competition and microfinance," Journal of Development Economics, Elsevier, vol. 78(2), pages 271-298, December.
    11. Valentina Hartarska & Denis Nadolnyak, 2007. "Do regulated microfinance institutions achieve better sustainability and outreach? Cross-country evidence," Applied Economics, Taylor & Francis Journals, vol. 39(10), pages 1207-1222.
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    Cited by:

    1. Attiya Yasmin Javid & Afsheen Abrar, 2015. "Microfinance Institutions and Poverty Reduction: A Cross Regional Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 54(4), pages 371-387.
    2. Brishti Guha & Prabal Roy Chowdhury, 2014. "Borrower Targeting under Microfinance Competition with Motivated Microfinance Institutions and Strategic Complementarity," The Developing Economies, Institute of Developing Economies, vol. 52(3), pages 211-240, September.
    3. Brishti Guha & Prabal Roy Chowdhury, 2012. "Borrower Targeting under Micro-finance Competition with Motivated MFIs," Working Papers 05-2012, Singapore Management University, School of Economics.
    4. Louis, Philippe & Seret, Alex & Baesens, Bart, 2013. "Financial Efficiency and Social Impact of Microfinance Institutions Using Self-Organizing Maps," World Development, Elsevier, vol. 46(C), pages 197-210.
    5. Mira Nurmakhanova & Gavin Kretzschmar & Hassouna Fedhila, 2015. "Trade-off between financial sustainability and outreach of microfinance institutions," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 5(2), pages 231-250, December.
    6. repec:spr:qualqt:v:52:y:2018:i:3:d:10.1007_s11135-017-0528-1 is not listed on IDEAS

    More about this item

    Keywords

    Competition; Wide outreach; Microfinance Institutions; Poverty reduction;

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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