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Market Structure and Borrower Welfare in Microfinance

Author

Listed:
  • Jonathan de Quidt
  • Thiemo Fetzer
  • Maitreesh Ghatak

Abstract

Motivated by recent controversies surrounding the role of commercial lenders in microfinance, and calls for regulation of the sector, we analyse borrower welfare under different market structures, considering a benevolent non†profit lender, a for†profit monopolist and a competitive credit market. To understand the magnitude of the effects analysed, we simulate the model with parameters estimated from the MIX Market database. Our results suggest that market power can have severe implications for borrower welfare, while despite possible enforcement externalities competition typically delivers similar borrower welfare to non†profit lending.

Suggested Citation

  • Jonathan de Quidt & Thiemo Fetzer & Maitreesh Ghatak, 2018. "Market Structure and Borrower Welfare in Microfinance," Economic Journal, Royal Economic Society, vol. 128(610), pages 1019-1046, May.
    • Handle: RePEc:wly:econjl:v:128:y:2018:i:610:p:1019-1046
    DOI: 10.1111/ecoj.12591
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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