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Market Structure and Borrower Welfare in Microfinance

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  • de Quidt, Jonathan
  • Fetzer, Thiemo
  • Ghatak, Maitreesh

Abstract

Motivated by recent controversies surrounding the role of commercial lenders in microfinance, we analyze 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 analyzed, 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 information frictions competition typically delivers similar borrower welfare to non-profit lending. In addition, for-profit lenders are less likely to use joint liability than non-profits.

Suggested Citation

  • de Quidt, Jonathan & Fetzer, Thiemo & Ghatak, Maitreesh, 2012. "Market Structure and Borrower Welfare in Microfinance," CEPR Discussion Papers 9165, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:9165
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    Citations

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    Cited by:

    1. Chowdhury, Shyamal & Chowdhury, Prabal Roy & Sengupta, Kunal, 2014. "Sequential lending with dynamic joint liability in micro-finance," Journal of Development Economics, Elsevier, vol. 111(C), pages 167-180.
    2. Fetzer, Thiemo, 2016. "Commercialization and the Decline of Joint Liability Microcredit," The Warwick Economics Research Paper Series (TWERPS) 1119, University of Warwick, Department of Economics.
    3. Ahlin, Christian & Waters, Brian, 2016. "Dynamic microlending under adverse selection: Can it rival group lending?," Journal of Development Economics, Elsevier, vol. 121(C), pages 237-257.
    4. repec:cep:stieop:44 is not listed on IDEAS
    5. Allen, Treb, 2016. "Optimal (partial) group liability in microfinance lending," Journal of Development Economics, Elsevier, vol. 121(C), pages 201-216.
    6. Kaniska Dam & Prabal Roy Chowdhuri, 2015. "Incentives and Competition in Microfinance," Working papers DTE 579, CIDE, División de Economía.
    7. Baland, Jean-Marie & Somanathan, Rohini & Wahhaj, Zaki, 2013. "Repayment incentives and the distribution of gains from group lending," Journal of Development Economics, Elsevier, vol. 105(C), pages 131-139.
    8. Ahlin, Christian, 2015. "The role of group size in group lending," Journal of Development Economics, Elsevier, vol. 115(C), pages 140-155.
    9. de Quidt, Jonathan & Fetzer, Thiemo & Ghatak, Maitreesh, 2016. "Group lending without joint liability," Journal of Development Economics, Elsevier, vol. 121(C), pages 217-236.
    10. Catalina Martinez, 2015. "Doing Well by Doing Good? Empirical Evidence from Microfinance," CFD Working Papers 06-2015, Centre for Finance and Development, The Graduate Institute.
    11. Giné, Xavier & Karlan, Dean S., 2014. "Group versus individual liability: Short and long term evidence from Philippine microcredit lending groups," Journal of Development Economics, Elsevier, vol. 107(C), pages 65-83.
    12. Lutz G. Arnold & Benedikt Booker & Gregor Dorfleitner & Michaela Röhe, 2016. "Refinancing MFIs with Market Power: Theory and Evidence," Working Papers 162, Bavarian Graduate Program in Economics (BGPE).
    13. Shapiro, D.A., 2015. "Microfinance and dynamic incentives," Journal of Development Economics, Elsevier, vol. 115(C), pages 73-84.

    More about this item

    Keywords

    for-profit; market power; microfinance; social capital;

    JEL classification:

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

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