Competitive Microcredit Markets: Differentiation and ex-ante Incentives for Multiple Borrowing

Paolo Casini ()

LICOS Discussion Papers from LICOS - Centre for Institutions and Economic Performance, KU Leuven

Abstract: We analyze an oligopolistic microcredit market characterized by asymmetric information and institutions that can offer only one type of contract. We study the effects of competition on contract choice when small entrepreneurs can borrow from more than one institution due to the absence of credit bureaus. We show that appropriate contract design can eliminate the ex-ante incentives for multiple borrowing. Moreover, when the market is still largely unserved and particularly risky, a screening strategy leading to contract differentiation and credit rationing is unambiguously the most effective to avoid multiple borrowing.

Keywords: Microfinance; Competition; Credit Bureaus; Multiple Borrowing; Credit Rationing (search for similar items in EconPapers)
JEL-codes: G21 L13 L31 O16 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (4)

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Journal Article: Competitive microcredit markets: differentiation and ex ante incentives for multiple borrowing (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:lic:licosd:26610

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