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Micro-finance competition: Motivated micro-lenders, double-dipping and default

  • Brishti Guha

    ()

    (Singapore Management University)

  • Prabal Roy Chowdhury

    ()

    (Indian Statistical Institute, New Delhi)

We develop a tractable model of competition among motivated MFIs. We find that equilibria may or may not involve double-dipping (and consequently default), with there being double-dipping whenever the MFIs are very profit-oriented. Moreover, in an equilibrium with double-dipping, borrowers who double-dip are actually worse off compared to those who do not. Further, for intermediate levels of motivation, there can be multiple equilibria, with a doubledipping equilibrium co-existing with a no default equilibrium. Interestingly, an increase in MFI competition can lower efficiency, as well as increase the extent of double-dipping and default. Further, the interest rates may go either way, with the interest rate likely to increase if the MFIs are very motivated.

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File URL: http://www.isid.ac.in/~pu/dispapers/dp12-01.pdf
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Paper provided by Indian Statistical Institute, New Delhi, India in its series Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers with number 12-01.

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Length: 40 pages
Date of creation: Jan 2012
Date of revision:
Handle: RePEc:ind:isipdp:12-01
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  8. Greg Fischer & Maitreesh Ghatak, 2010. "Repayment Frequency in Microfinance Contracts with Present-Biased Borrowers," STICERD - Economic Organisation and Public Policy Discussion Papers Series 021, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  9. Alain de Janvry & Craig McIntosh & Elisabeth Sadoulet, 2006. "The supply and demand side impacts of credit market information," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
  10. Brito, Dagobert L & Hartley, Peter R, 1995. "Consumer Rationality and Credit Cards," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 400-433, April.
  11. Ausubel, Lawrence M, 1991. "The Failure of Competition in the Credit Card Market," American Economic Review, American Economic Association, vol. 81(1), pages 50-81, March.
  12. Brishti Guha & Prabal Roy Chowdhury, 2013. "Micro-finance Competition: Motivated Micro-lenders, Double-dipping and Default," Working Papers 01-2013, Singapore Management University, School of Economics.
  13. Meier, Stephan & Sprenger, Charles, 2009. "Present-Biased Preferences and Credit Card Borrowing," IZA Discussion Papers 4198, Institute for the Study of Labor (IZA).
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  17. Sergio Navajas & Jonathan Conning & Claudio Gonzalez-Vega, 2003. "Lending technologies, competition and consolidation in the market for microfinance in Bolivia," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(6), pages 747-770.
  18. Brishti Guha & Prabal Roy Chowdhury, 2012. "Borrower Targeting under Micro-finance Competition with Motivated MFIs," Working Papers 05-2012, Singapore Management University, School of Economics.
  19. Vogelgesang, Ulrike, 2003. "Microfinance in Times of Crisis: The Effects of Competition, Rising Indebtedness, and Economic Crisis on Repayment Behavior," World Development, Elsevier, vol. 31(12), pages 2085-2114, December.
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  21. Aldashev, Gani & Verdier, Thierry, 2010. "Goodwill bazaar: NGO competition and giving to development," Journal of Development Economics, Elsevier, vol. 91(1), pages 48-63, January.
  22. Reynaldo Marconi & Paul Mosley, 2005. "Bolivia during the global crisis 1998-2004: towards a macroeconomics of microfinance," Working Papers 2005007, The University of Sheffield, Department of Economics, revised May 2005.
  23. Kranton, Rachel E. & Swamy, Anand V., 1999. "The hazards of piecemeal reform: british civil courts and the credit market in colonial India," Journal of Development Economics, Elsevier, vol. 58(1), pages 1-24, February.
  24. Timothy Besley & Maitreesh Ghatak, 2006. "Sorting with Motivated Agents: Implications for School Competition and Teacher Incentives," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 404-414, 04-05.
  25. Basu, Karna, 2014. "Commitment savings in informal banking markets," Journal of Development Economics, Elsevier, vol. 107(C), pages 97-111.
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