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Funding microfinance under asymmetric information

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  • Ghosh, Suman
  • Van Tassel, Eric

Abstract

We consider a model where poverty minimizing donors fund microfinance lenders that are heterogeneous in cost. Under asymmetric information the donors face a choice whether to issue grants or to charge the lenders for funds. While charging for funds leads to higher interest rates, a higher rate can induce separation by squeezing the higher cost lenders. Whether separation is good for aggregate poverty reduction or not depends on the quantity of supply of funds. When the supply is small grants are best, but when the supply is large enough it is better that lenders pay for external funding.

Suggested Citation

  • Ghosh, Suman & Van Tassel, Eric, 2013. "Funding microfinance under asymmetric information," Journal of Development Economics, Elsevier, vol. 101(C), pages 8-15.
  • Handle: RePEc:eee:deveco:v:101:y:2013:i:c:p:8-15
    DOI: 10.1016/j.jdeveco.2012.09.005
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Mathurin FOUNANOU & Zaka RATSIMALAHELO, 2016. "Regulation of Microfinance Institutions in Developing countries: an incentives theory approach," Working Papers 2016-03, CRESE.
    2. Simon Cornée & Marc Jegers & Ariane Szafarz, 2018. "A Theory of Social Finance," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 2018-02, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
    3. repec:eee:wdevel:v:107:y:2018:i:c:p:176-188 is not listed on IDEAS
    4. Mathurin Founanou & Zaka Ratsimalahelo, 2016. "Regulation of Microfinance Institutions in Developing countries: an incentives theory approach," Working Papers hal-01376900, HAL.
    5. Sara Biancini & David Ettinger & Baptiste Venet, 2017. "Mission Drift in Microcredit and Microfinance Institution Incentives," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 2017-02, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
    6. Janda, Karel & Van Tran, Quang & Zetek, Pavel, 2014. "Influence of External Funding on Microfinance Performance," MPRA Paper 58170, University Library of Munich, Germany.
    7. Kumar Kar, Ashim & Bali Swain, Ranjula, 2014. "Competition, performance and portfolio quality in microfinance markets," Working Paper Series 2014:8, Uppsala University, Department of Economics.
    8. Daudi Pascal & Leif Atle Beisland & Roy Mersland, 2016. "The origin of CEOs and its influence on microfinance performance and risk-taking," Working Papers CEB 16-046, ULB -- Universite Libre de Bruxelles.
    9. Janda, Karel & Tran, Quang & Zetek, Pavel, 2014. "Vliv externího financování na mikrofinanční rozvoj - makro perspektiva
      [Influence of external funding on microfinance performance - macro perspective]
      ," MPRA Paper 58166, University Library of Munich, Germany.
    10. Janda, Karel & Zetek, Pavel, 2014. "The Impact of Public Spending on the Performance of Microfinance Institutions," MPRA Paper 55690, University Library of Munich, Germany.

    More about this item

    Keywords

    Microfinance; Poverty; Screening;

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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