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Microfinance in Times of Crisis: The Effects of Competition, Rising Indebtedness, and Economic Crisis on Repayment Behavior

This paper analyzes repayment determinants for loans from Caja Los Andes, a Bolivian microlender. The analysis focuses on the influence of recent changes in the Bolivian microfinance market. In particular, we examine the effects of the rapidly growing supply of funds for micro-loans, the increasing competition, a rising level of indebtedness among micro-entrepreneurs, and the recent economic crisis. Our results show a two-fold influence structure of competition and indebtedness. Firstly, clients with loans from multiple sources at the same time are found to be more likely to default than others. Secondly, clients with given characteristics have an overall better repayment behavior in areas with higher competition and a higher supply of micro-loans.

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File URL: http://www.vwl.uni-mannheim.de/gk/wp/gkwp-2001-06.pdf
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File URL: http://www.vwl.uni-mannheim.de/gk/wp/gkwp-2001-06.ps
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Paper provided by Post Graduate Programme "Allocation on Financial Markets", University of Mannheim in its series GK working paper series with number 2001-06.

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Length: 50 pages
Date of creation: Jul 2001
Date of revision: Nov 2001
Handle: RePEc:xrs:gkwopa:2001-06
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Web page: http://www.vwl.uni-mannheim.de/gk
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  1. Bengt Holmstrom & Jean Tirole, 1994. "Financial Intermediation, Loanable Funds and the Real Sector," Working papers 95-1, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Bulow, Jeremy & Rogoff, Kenneth, 1989. "Sovereign Debt: Is to Forgive to Forget?," American Economic Review, American Economic Association, vol. 79(1), pages 43-50, March.
  3. Hellwig, Martin F, 1977. "A Model of Borrowing and Lending with Bankruptcy," Econometrica, Econometric Society, vol. 45(8), pages 1879-1906, November.
  4. Francis Vella, 1998. "Estimating Models with Sample Selection Bias: A Survey," Journal of Human Resources, University of Wisconsin Press, vol. 33(1), pages 127-169.
  5. Mark Schreiner, 2001. "A Scoring Model of the Risk of Costly Arrears at a Microfinance Lender in Bolivia," Development and Comp Systems 0109005, EconWPA.
  6. Parikshit Ghosh & Debraj Ray, 1999. "Information and Enforcement in Informal Credit Markets," Boston University - Institute for Economic Development 93, Boston University, Institute for Economic Development.
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  8. Allen, Franklin, 1981. "The Prevention of Default," Journal of Finance, American Finance Association, vol. 36(2), pages 271-76, May.
  9. Patten, Richard H. & Rosengard, Jay k. & Johnston, Don JR., 2001. "Microfinance Success Amidst Macroeconomic Failure: The Experience of Bank Rakyat Indonesia During the East Asian Crisis," World Development, Elsevier, vol. 29(6), pages 1057-1069, June.
  10. Greene, William, 1998. "Sample selection in credit-scoring models1," Japan and the World Economy, Elsevier, vol. 10(3), pages 299-316, July.
  11. Daniel McFadden, 1976. "A Comment on Discriminant Analysis "Versus" Logit Analysis," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 511-523 National Bureau of Economic Research, Inc.
  12. Ulrike Vogelgesang, 2000. "Investigating Microfinance: Caja Los Andes, Bolivia," GK working paper series 2001-01, Post Graduate Programme "Allocation on Financial Markets", University of Mannheim, revised Nov 2001.
  13. Bolton, Patrick & Scharfstein, David S, 1990. "A Theory of Predation Based on Agency Problems in Financial Contracting," American Economic Review, American Economic Association, vol. 80(1), pages 93-106, March.
  14. Jonathan Eaton & Mark Gersovitz & Joseph E. Stiglitz, 1991. "The Pure Theory of Country Risk," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 391-435 National Bureau of Economic Research, Inc.
  15. Beatriz Armendáriz de Aghion & Jonathan Morduch, 2000. "Microfinance Beyond Group Lending," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(2), pages 401-420, July.
  16. Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December.
  17. Patrick Bolton & Xavier Freixas, 2000. "Equity, Bonds, and Bank Debt: Capital Structure and Financial Market Equilibrium under Asymmetric Information," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 324-351, April.
  18. J. Miguel Villas-Boas & Udo Schmidt-Mohr, 1999. "Oligopoly with Asymmetric Information: Differentiation in Credit Markets," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 375-396, Autumn.
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