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Franchising Microfinance

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  • Amit Bubna
  • Bhagwan Chowdhry

Abstract

Financial intermediaries worldwide are seeking mechanisms for participating in micro lending. Using informed "local capitalists" as bank's on-lenders fails due to borrowers' incentive to default with multiple credit sources. A coalition of local capitalists may not resolve the problem in the presence of a monopoly moneylender with superior skills in lending and enforcement. A credible competitive threat to the moneylender can only arise if the local capitalist coalition also provides information sharing benefits that lower their cost of lending vis-à-vis the moneylender. Franchising allows local capitalists to form such a coalition. We analyze conditions under which welfare-enhancing franchising would obtain. Copyright 2010, Oxford University Press.

Suggested Citation

  • Amit Bubna & Bhagwan Chowdhry, 2010. "Franchising Microfinance," Review of Finance, European Finance Association, vol. 14(3), pages 451-476.
  • Handle: RePEc:oup:revfin:v:14:y:2010:i:3:p:451-476
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    File URL: http://hdl.handle.net/10.1093/rof/rfp005
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    Cited by:

    1. Carli, Francesco & Uras, Burak R., 2017. "Joint-liability with endogenously asymmetric group loan contracts," Journal of Development Economics, Elsevier, vol. 127(C), pages 72-90.
    2. Franklin Allen & Elena Carletti & Robert Cull & Jun QJ Qian & Lemma Senbet & Patricio Valenzuela, 2021. "Improving Access to Banking: Evidence from Kenya [A matter of experience? Understanding the decline in group lending]," Review of Finance, European Finance Association, vol. 25(2), pages 403-447.
    3. Namrata Gupta & Anita Mirchandani, 2020. "Corporate governance and performance of microfinance institutions: recent global evidences," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 24(2), pages 307-326, June.
    4. Tchakoute Tchuigoua, Hubert & Simo, Christelle & Durrieu, François, 2022. "Business cycle and cash holdings: Empirical evidence from microfinance institutions," Finance Research Letters, Elsevier, vol. 50(C).
    5. Tchakoute Tchuigoua, Hubert, 2016. "Buffer capital in microfinance institutions," Journal of Business Research, Elsevier, vol. 69(9), pages 3523-3537.

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