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The Competition between Relationship-Based Microfinance and Transaction Lending


  • Schrader, Jan


We empirically analyze the competition between a relationship lender and a transaction lender in the credit business with micro and small entrepreneurs. Drawing on a data set about the customers of the relationship lender ProCredit Ecuador combined with data about all other loans of these customers in the Ecuadorian banking system, we are able to analyze the competition between different banking types. We find that the quality of ProCredit borrowers who have a trans- action loan as well is below average. They also have higher default probabilities. Furthermore, we find evidence that ProCredit customers with payment problems prefer to serve their relationship loan while defaulting on their transaction loan. These findings suggest that customers of a relationship bank value their banking relationship and try to protect it as long as possible. This result stands in contrast to the common presumption that the market entrance of transaction lenders will destroy the market for lenders applying relationship lending techniques.

Suggested Citation

  • Schrader, Jan, 2009. "The Competition between Relationship-Based Microfinance and Transaction Lending," Proceedings of the German Development Economics Conference, Frankfurt a.M. 2009 31, Verein für Socialpolitik, Research Committee Development Economics.
  • Handle: RePEc:zbw:gdec09:31

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    References listed on IDEAS

    1. Hristos Doucouliagos & Martin Paldam, 2009. "The Aid Effectiveness Literature: The Sad Results Of 40 Years Of Research," Journal of Economic Surveys, Wiley Blackwell, vol. 23(3), pages 433-461, July.
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    6. Axel Dreher & Peter Nunnenkamp & Rainer Thiele, 2008. "Does Aid for Education Educate Children? Evidence from Panel Data," World Bank Economic Review, World Bank Group, vol. 22(2), pages 291-314, April.
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    Cited by:

    1. Berg, Gunhild & Schrader, Jan, 2012. "Access to credit, natural disasters, and relationship lending," Journal of Financial Intermediation, Elsevier, vol. 21(4), pages 549-568.

    More about this item


    Microfinance; Competition; Relationship Lending; Transaction Lending;

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages


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