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

Listed author(s):
  • Guha, Brishti
  • Roy Chowdhury, Prabal

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 double-dipping 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: https://mpra.ub.uni-muenchen.de/36116/1/MPRA_paper_36116.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36116.

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Date of creation: 15 Jan 2012
Handle: RePEc:pra:mprapa:36116
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  1. Timothy Besley & Maitreesh Ghatak, 2003. "Competition and incentives with motivated agents," LSE Research Online Documents on Economics 2202, London School of Economics and Political Science, LSE Library.
  2. Ghatak, Maitreesh & Mueller, Hannes, 2011. "Thanks for nothing? Not-for-profits and motivated agents," Journal of Public Economics, Elsevier, vol. 95(1-2), pages 94-105, February.
  3. Craig McIntosh & Alain Janvry & Elisabeth Sadoulet, 2005. "How Rising Competition Among Microfinance Institutions Affects Incumbent Lenders," Economic Journal, Royal Economic Society, vol. 115(506), pages 987-1004, October.
  4. Kahn, C.M. & Mookherjee, D., 1996. "Competition and Incentives with Non-Exclusive Contracts," Papers 75, Boston University - Industry Studies Programme.
  5. Greg Fischer & Maitreesh Ghatak, 2010. "Repayment frequency in microfinance contracts with present-biased borrowers," LSE Research Online Documents on Economics 58184, London School of Economics and Political Science, LSE Library.
  6. Ulrike Vogelgesang, 2001. "Microfinance in Times of Crisis: The Effects of Competition, Rising Indebtedness, and Economic Crisis on Repayment Behavior," GK working paper series 2001-06, Post Graduate Programme "Allocation on Financial Markets", University of Mannheim, revised Nov 2001.
  7. 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.
  8. 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.
  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, pages -.
  10. 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.
  11. Brishti Guha & Prabal Roy Chowdhury, 2012. "Micro-finance Competition: Motivated Micro-lenders, Double-dipping and Default," Working Papers 04-2012, Singapore Management University, School of Economics.
  12. Gani Aldashev & Thierry Verdier, 2010. "Goodwill bazaar: NGO competition and giving to development," Post-Print halshs-00754487, HAL.
  13. Hoff, Karla & Stiglitz, Joseph E., 1998. "Moneylenders and bankers: price-increasing subsidies in a monopolistically competitive market," Journal of Development Economics, Elsevier, vol. 55(2), pages 485-518, April.
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  15. McIntosh, Craig & Wydick, Bruce, 2005. "Competition and microfinance," Journal of Development Economics, Elsevier, vol. 78(2), pages 271-298, December.
  16. Roy, Jaideep & Chowdhury, Prabal Roy, 2009. "Public-private partnerships in micro-finance: Should NGO involvement be restricted?," Journal of Development Economics, Elsevier, vol. 90(2), pages 200-208, November.
  17. Niels Hermes & Robert Lensink, "undated". "The empirics of microfinance: what do we know?," ULB Institutional Repository 2013/14198, ULB -- Universite Libre de Bruxelles.
  18. 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.
  19. Stephan Meier & Charles Sprenger, 2010. "Present-Biased Preferences and Credit Card Borrowing," American Economic Journal: Applied Economics, American Economic Association, vol. 2(1), pages 193-210, January.
  20. Paul Heidhues & Botond Koszegi, 2010. "Exploiting Naivete about Self-Control in the Credit Market," American Economic Review, American Economic Association, vol. 100(5), pages 2279-2303, December.
  21. 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.
  22. 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.
  23. van Tassel, Eric, 2002. "Signal Jamming in New Credit Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 469-490, May.
  24. Basu, Karna, 2014. "Commitment savings in informal banking markets," Journal of Development Economics, Elsevier, vol. 107(C), pages 97-111.
  25. 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.
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