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Micro-finance Competition: Motivated Micro-lenders, Double-dipping and Default

  • Brishti Guha

    ()

    (Department of Economics, Singapore Management University, 90 Stamford Road, Singapore 178903)

  • Prabal Roy Chowdhury

We develop a tractable model of competition among socially motivated MFIs, so that the objective functions of the MFIs put some weight on their own clients' utility. We nd that the equilibrium involves double-dipping, i.e. borrowers taking multiple loans from different MFIs, whenever the MFIs are relatively profit-oriented. Further, double-dipping necessarily leads to default and inefficiency, and moreover, borrowers who double-dip face relatively higher transactions costs and are actually worse off compared to those who do not. Interestingly, an increase in MFI competition can increase the extent of doubledipping and default. Further, the interest rates may go either way, with the interest rate likely to increase if the MFIs are very socially motivated.

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Paper provided by Singapore Management University, School of Economics in its series Working Papers with number 01-2013.

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Length: 43 pages
Date of creation: Jan 2013
Date of revision:
Publication status: Published in SMU Economics and Statistics Working Paper Series
Handle: RePEc:siu:wpaper:01-2013
Contact details of provider: Postal: 90 Stamford Road, Singapore 178903
Phone: 65-6828 0832
Fax: 65-6828 0833
Web page: http://www.economics.smu.edu.sg/

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  2. Timothy Besley & Maitreesh Ghatak, 2005. "Competition and Incentives with Motivated Agents," American Economic Review, American Economic Association, vol. 95(3), pages 616-636, June.
  3. Guha, Brishti & Chowdhury, Prabal Roy, 2013. "Micro-finance competition: Motivated micro-lenders, double-dipping and default," Journal of Development Economics, Elsevier, vol. 105(C), pages 86-102.
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  9. 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.
  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.
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  23. 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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