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Competitive microcredit markets: differentiation and ex ante incentives for multiple borrowing

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  • By Paolo Casini

Abstract

I analyse an oligopolistic microcredit market characterized by asymmetric information on the riskiness of borrowers. I study the effects of competition when, due to the absence of credit bureaus, small entrepreneurs can borrow from more than one institution. I show how contract design can influence the ex ante incentives for multiple borrowing. Our model predicts that, under some conditions, a screening strategy based on contract differentiation and credit rationing can avoid multiple borrowing.

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  • By Paolo Casini, 2015. "Competitive microcredit markets: differentiation and ex ante incentives for multiple borrowing," Oxford Economic Papers, Oxford University Press, vol. 67(4), pages 1015-1033.
  • Handle: RePEc:oup:oxecpp:v:67:y:2015:i:4:p:1015-1033.
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    1. Hoff, Karla & Stiglitz, Joseph E., 1998. "Moneylenders and bankers: price-increasing subsidies in a monopolistically competitive market," Journal of Development Economics, Elsevier, vol. 55(2), pages 485-518, April.
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    Cited by:

    1. Maitra, Pushkar & Mitra, Sandip & Mookherjee, Dilip & Motta, Alberto & Visaria, Sujata, 2017. "Financing smallholder agriculture: An experiment with agent-intermediated microloans in India," Journal of Development Economics, Elsevier, vol. 127(C), pages 306-337.
    2. Paolo Casini, 2008. "Competition and Altruism in Microcredit Markets," Working Papers ECARES 2008_037, ULB -- Universite Libre de Bruxelles.
    3. Chichaibelu, Bezawit Beyene & Waibel, Hermann, 2017. "Borrowing from “Pui” to Pay “Pom”: Multiple Borrowing and Over-Indebtedness in Rural Thailand," World Development, Elsevier, vol. 98(C), pages 338-350.
    4. Chichaibelu, Bezawit & Waibel, Hermann, 2015. "The Interrelated Dynamics of Multiple Borrowing and Over-indebtedness among Rural Households in Thailand and Vietnam," 2015 Conference, August 9-14, 2015, Milan, Italy 211463, International Association of Agricultural Economists.

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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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