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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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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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