Microcredit and Price Competition: standardize to differentiate

Paolo Casini ()

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

Abstract: Microfinance institutions, despite the presence of competition and informational asymmetries, typically offer a limited variety of contracts. Assuming price competition, we propose a simple theoretical explanation for this behavior and study its consequences in terms of strategic interaction and borrower welfare. We model an oligopolistic market in which Microfinance Institutions design their contracts and choose how many of them to offer. We find that when offering a menu is costly, MFIs always offer a single contract. Despite that, there exist equilibria in which MFIs coordinate and offer screening contracts, allowing them to extract a large fraction of the borrower welfare. We discuss the policy implications of our model in terms of price caps, market entry and outreach measurement.

Keywords: Micro nance; Competition; Altruism; Contract Menus; Credit Rationing (search for similar items in EconPapers)
JEL-codes: G21 L13 L31 O16 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-com, nep-cta, nep-mfd and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:lic:licosd:34914

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