State Intervention and the (Micro)Credit Market in Developed Countries: Loan Guarantee and Business Development Services
We analyze in this paper how various forms of State intervention can impact the microcredit market in developed countries. Using a simple model where entrepreneurs borrow without collateral, we study the effect of different policies on microfinance institutions' lending behavior. We first introduce state intervention through the loan guarantee and show that, not surprisingly, it increases the number of entrepreneurs receiving a loan. However, after modeling business development services provided by the microfinance institution, we show that the government loan guarantee can have a counterproductive effect by reducing the number of entrepreneurs benefiting from such services. We therefore analyze an alternative policy: the subsidization of business development services by the State. We then provide a condition under which - for fixed government expenditures - such subsidies are more effective (in terms of outreach) than loan guarantees.
|Date of creation:||Apr 2013|
|Date of revision:|
|Note:||View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00811191|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dean Karlan & Martin Valdivia, 2011.
"Teaching Entrepreneurship: Impact of Business Training on Microfinance Clients and Institutions,"
The Review of Economics and Statistics,
MIT Press, vol. 93(2), pages 510-527, May.
- Martin Valdivia & Dean Karlan, 2006. "Teaching Entrepreneurship: Impact of Business Training on Microfinance Clients and Institutions," Working Papers 941, Economic Growth Center, Yale University.
- Dean Karlan & Martin Valdivia, 2006. "Teaching entrepreneurship: Impact of business training on microfinance clients and institutions," Natural Field Experiments 00282, The Field Experiments Website.
- Dean Karlan & Martin Valdivia, 2007. "Teaching Entrepreneurship: Impact of Business Training on Microfinance Clients and Institutions," Working Papers 107, Center for Global Development.
- Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-48, July-Aug..
- William G. Gale, 1988.
"Federal Lending and the Market for Credit,"
UCLA Economics Working Papers
504, UCLA Department of Economics.
- Frédéric Cherbonnier & Maud Aubier, 2007. "L'accès des entreprises au crédit bancaire," Économie et Prévision, Programme National Persée, vol. 177(1), pages 121-128.
- Emran, M. Shahe & Morshed, A.K.M Mahbub & Stiglitz, Joseph E., 2011. "Microfinance and Missing Markets," MPRA Paper 41451, University Library of Munich, Germany.
- Morduch, Jonathan, 1999. "The role of subsidies in microfinance: evidence from the Grameen Bank," Journal of Development Economics, Elsevier, vol. 60(1), pages 229-248, October.
- Mieno, Fumiharu & Kai, Hisako, 2012. "Do Subsidies Enhance or Erode the Cost Efficiency of Microfinance? Evidence from MFI Worldwide Micro Data," PRIMCED Discussion Paper Series 26, Institute of Economic Research, Hitotsubashi University.
- Morduch, Jonathan, 2000.
"The Microfinance Schism,"
Elsevier, vol. 28(4), pages 617-629, April.
- Marek Hudon & Daniel Traca, 2006.
"On the efficiency effects of subsidies in microfinance: an empirical inquiry,"
Working Papers CEB
06-020.RS, ULB -- Universite Libre de Bruxelles.
- Hudon, Marek & Traca, Daniel, 2011. "On the Efficiency Effects of Subsidies in Microfinance: An Empirical Inquiry," World Development, Elsevier, vol. 39(6), pages 966-973, June.
- Daniel Traca, 2011. "On the Efficiency Effects of Subsidies in Microfinance: An Empirical Inquiry," ULB Institutional Repository 2013/89989, ULB -- Universite Libre de Bruxelles.
- Richard J. Arnott & Joseph E. Stiglitz, 1983.
"Moral Hazard and Optimal Commodity Taxation,"
NBER Working Papers
1154, National Bureau of Economic Research, Inc.
- McIntosh, Craig & Wydick, Bruce, 2005. "Competition and microfinance," Journal of Development Economics, Elsevier, vol. 78(2), pages 271-298, December.
- Cull, Robert & Demirguc-Kunt, Asli & Morduch, Jonathan, 2006.
"Financial performance and outreach : a global analysis of leading microbanks,"
Policy Research Working Paper Series
3827, The World Bank.
- Robert Cull & Asli Demirguç-Kunt & Jonathan Morduch, 2007. "Financial performance and outreach: a global analysis of leading microbanks," Economic Journal, Royal Economic Society, vol. 117(517), pages F107-F133, 02.
- Ellis, Randall P. & Manning, Willard G., 2007. "Optimal health insurance for prevention and treatment," Journal of Health Economics, Elsevier, vol. 26(6), pages 1128-1150, December.
- Robert M. Townsend, 2003. "Microcredit And Mechanism Design," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 468-477, 04/05.
- Preyra, Colin & Pink, George, 2001. "Balancing incentives in the compensation contracts of nonprofit hospital CEOs," Journal of Health Economics, Elsevier, vol. 20(4), pages 509-525, July.
- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
- Bert D'Espallier & Marek Hudon & Ariane Szafarz, 2013.
"Unsubsidized Microfinance Institutions,"
ULB Institutional Repository
2013/148890, ULB -- Universite Libre de Bruxelles.
- Mieno, Fumiharu & Kai, Hisako, 2012. "Do Subsidies Enhance or Erode the Cost Efficiency of Microfinance? Evidence from MFI Worldwide Micro Data," CEI Working Paper Series 2011-14, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
- Anderson, Siwan & Baland, Jean-Marie & Moene, Karl Ove, 2009. "Enforcement in informal saving groups," Journal of Development Economics, Elsevier, vol. 90(1), pages 14-23, September.
- Beatriz Armendariz & Bert D'Espallier & Marek Hudon & Ariane Szafarz, 2011. "Subsidy Uncertainty and Microfinance Mission Drift," Working Papers CEB 11-014, ULB -- Universite Libre de Bruxelles.
- Ben Craig & William Jackson & James Thomson, 2008. "Credit market failure intervention: Do government sponsored small business credit programs enrich poorer areas?," Small Business Economics, Springer, vol. 30(4), pages 345-360, April.
- Wedig, Gerard J., 1994. "Risk, leverage, donations and dividends-in-kind: A theory of nonprofit financial behavior," International Review of Economics & Finance, Elsevier, vol. 3(3), pages 257-278.
When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:halshs-00811191. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD)
If references are entirely missing, you can add them using this form.