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Lending Technologies, Competition, and Consolidation in the Market for Microfinance in Bolivia

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Abstract

Innovations in lending technologies and market saturation have transformed La Paz, Bolivia into one of the most rapidly changing and competitive microfinance markets in the world. Two lenders stand out in this context: the pioneer BancoSol, which first entered and profitably expanded the loan market with a group liability loans, and the later entrant Caja Los Andes, which offered individual liability loans using costlier screening methods. In this paper we use a simple model of moral hazard and adverse selection to describe and analyze the nature of the competition amongst these lenders. We focus on how the terms of different loan contracts change with competition and how this affects borrowers' decisions about diligence and repayment. The hypothesized patterns of behavior are tested and shown to be consistent with empirical evidence from loan records and household survey data.

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  • Jonathan Conning & Sergio Navajas & Claudio Gonzalez-Vega, 2003. "Lending Technologies, Competition, and Consolidation in the Market for Microfinance in Bolivia," Economics Working Paper Archive at Hunter College 213, Hunter College Department of Economics.
    • Handle: RePEc:htr:hcecon:213
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    More about this item

    Keywords

    Microfinance; Financial intermediation; poverty.;
    All these keywords.

    JEL classification:

    • D0 - Microeconomics - - General
    • G1 - Financial Economics - - General Financial Markets

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