Competition, loan rates and information dispersion in microcredit markets

Guillermo Baquero, Malika Hamadi and Andréas Heinen
Additional contact information
Guillermo Baquero: ESMT European School of Management and Technology
Malika Hamadi: Luxembourg School of Finance (LSF)

No ESMT-12-02, ESMT Research Working Papers from ESMT European School of Management and Technology

Abstract: We study the effects of competition on loan rates and portfolio-at-risk in microcredit markets using a new database from rating agencies, covering 379 microbanks located in 67 countries between 2002 and 2008. Our study reveals different competitive effects in nonprofit and for-profit microbanks. We find that for-profit microbanks charge significantly lower rates and exhibit improved portfolio-at-risk in less concentrated markets. In particular, the effect of concentration on loan rates is nearly three times the one reported in previous studies in banking. In contrast, nonprofit microbanks are relatively insensitive to changes in concentration. We control for interest rate ceilings, which very significantly reduce rates in for-profit microbanks. However, our study also uncovers a competitive interplay between for-profit and nonprofit microbanks. In particular, the PAR of nonprofit microbanks deteriorates when the proportion of profit-oriented microbanks increases. Finally, we find evidence consistent with dispersion of borrower-specific information among competing microbanks in the for-profit sector, even after controlling for the presence of credit registries.

Keywords: bank competition; microfinance; microcredit; microbank; loan rates; information dispersion; PAR; portfolio quality (search for similar items in EconPapers)
JEL-codes: D4 G21 L1 O1 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2012-02-16
New Economics Papers: this item is included in nep-ban, nep-com, nep-cta and nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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http://static.esmt.org/publications/workingpapers/ESMT-12-02.pdf First version, 2012 (application/pdf)

Related works:
Working Paper: Competition, Loan Rates and Information Dispersion in Microcredit Markets (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:esm:wpaper:esmt-12-02

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