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Does the Grameen Bank exert market power over borrowers?

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  • Subir Bairagi
  • Azzeddine Azzam

Abstract

In this article, we use the recently developed stochastic frontier estimator of market power to test whether or not the Grameen Bank's lending rates are consistent with marginal cost pricing. We find that they are not and, on average, the markup is about 3% above marginal cost. However, the markup is considerably dwarfed when compared to the markups charged by commercial microfinance institutions. Their lending rates are reported to range from 97% to 165% above marginal cost.

Suggested Citation

  • Subir Bairagi & Azzeddine Azzam, 2014. "Does the Grameen Bank exert market power over borrowers?," Applied Economics Letters, Taylor & Francis Journals, vol. 21(12), pages 866-869, August.
  • Handle: RePEc:taf:apeclt:v:21:y:2014:i:12:p:866-869
    DOI: 10.1080/13504851.2014.894623
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    References listed on IDEAS

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    1. Niels Hermes & Robert Lensink & Habteab Mehrteab, 2006. "Does the Group Leader Matter? The Impact of Monitoring Activities and Social Ties of Group Leaders on the Repayment Performance of Group‐based Lending in Eritrea," African Development Review, African Development Bank, vol. 18(1), pages 72-97.
    2. Mark Schreiner, 2003. "A Cost-Effectiveness Analysis of the Grameen Bank of Bangladesh," Development Policy Review, Overseas Development Institute, vol. 21, pages 357-382, May.
    3. Hossain, Mahabub, 1988. "Credit for alleviation of rural poverty: the Grameen Bank in Bangladesh," Research reports 65, International Food Policy Research Institute (IFPRI).
    4. Sayma Rahman, 2010. "Consumpiton difference between microcredit borrowers and non-borrowers:a Bangladesh experience," Journal of Developing Areas, Tennessee State University, College of Business, vol. 43(2), pages 313-326, January-M.
    5. Nahid Aslanbeigui & Guy Oakes & Nancy Uddin, 2010. "Assessing Microcredit in Bangladesh: A Critique of the Concept of Empowerment," Review of Political Economy, Taylor & Francis Journals, vol. 22(2), pages 181-204.
    6. Esubalew Assefa & Niels Hermes & Aljar Meesters, 2013. "Competition and the performance of microfinance institutions," Applied Financial Economics, Taylor & Francis Journals, vol. 23(9), pages 767-782, May.
    7. Ariss, Rima Turk, 2010. "Competitive conditions in Islamic and conventional banking: A global perspective," Review of Financial Economics, Elsevier, vol. 19(3), pages 101-108, August.
    8. Subal Kumbhakar & Sjur Baardsen & Gudbrand Lien, 2012. "A New Method for Estimating Market Power with an Application to Norwegian Sawmilling," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 40(2), pages 109-129, March.
    9. Ashok S. Rai & Tomas Sjöström, 2004. "Is Grameen Lending Efficient? Repayment Incentives and Insurance in Village Economies," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 217-234.
    10. Md. Abul Basher, 2007. "Empowerment of microcredit participants and its spillover effects: evidence from the Grameen bank of Bangladesh," Journal of Developing Areas, Tennessee State University, College of Business, vol. 40(2), pages 173-183, January-M.
    11. Kabir Hassan, M. & Tufte, David R., 2001. "The X-Efficiency of a Group-Based Lending Institution: The Case of the Grameen Bank," World Development, Elsevier, vol. 29(6), pages 1071-1082, June.
    12. Nidhiya Menon, 2006. "Non-linearities in returns to participation in Grameen Bank programs," Journal of Development Studies, Taylor & Francis Journals, vol. 42(8), pages 1379-1400.
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    Cited by:

    1. Dimitrios Panagiotou & Athanassios Stavrakoudis, 2018. "A stochastic frontier estimator of the aggregate degree of market power exerted by the US meat packing industry," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 45(3), pages 387-401, September.
    2. Lopez, Rigoberto A. & Zheng, Hualu & Azzam, Azzeddine, 2015. "Oligopoly Power in the Food Industries Revisited: A Stochastic Frontier Approach," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205113, Agricultural and Applied Economics Association.
    3. Dimitrios Panagiotou & Athanassios Stavrakoudis, 2017. "A Stochastic Production Frontier Estimator of the Degree of Oligopsony Power in the U.S. Cattle Industry," Journal of Industry, Competition and Trade, Springer, vol. 17(1), pages 121-133, March.
    4. Li, Hongchang & Yu, Kemei & Wang, Kun & Zhang, Anming, 2019. "Market power and its determinants in the Chinese railway industry," Transportation Research Part A: Policy and Practice, Elsevier, vol. 120(C), pages 261-276.
    5. Bairagi, Subir, 2014. "Productivity and Efficiency Analysis of Microfinance Institutions (MFIS) in Bangladesh," MPRA Paper 67917, University Library of Munich, Germany.

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