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Micro-finance competition: Motivated micro-lenders, double-dipping and default

Brishti Guha () and Prabal Roy Chowdhury ()

Journal of Development Economics, 2013, vol. 105, issue C, 86-102

Abstract: We develop a tractable model of competition among socially motivated MFIs, so that the objective functions of the MFIs put some weight on their own clients' utility. We find that the equilibrium involves double-dipping, i.e. borrowers taking multiple loans from different MFIs, whenever the MFIs are relatively profit-oriented. Further, double-dipping necessarily leads to default and inefficiency, and moreover, borrowers who face relatively higher transactions costs optimally decide to double-dip. Interestingly, an increase in MFI competition can increase the extent of double-dipping and default. Further, the interest rates may go either way, with the interest rate likely to increase with more competition if the MFIs are very socially motivated.

Keywords: Micro-finance competition; Socially motivated MFIs; Double-dipping; Default; Subsidized credit; Interest cap (search for similar items in EconPapers)
JEL-codes: C72 D40 D82 G21 (search for similar items in EconPapers)
Date: 2013
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Working Paper: Micro-finance Competition: Motivated Micro-lenders, Double-dipping and Default (2013) Downloads
Working Paper: Micro-finance competition: Motivated micro-lenders, double-dipping and default (2012) Downloads
Working Paper: Micro-finance competition: motivated micro-lenders, double-dipping and default (2012) Downloads
Working Paper: Micro-finance Competition: Motivated Micro-lenders, Double-dipping and Default (2012) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:105:y:2013:i:c:p:86-102

DOI: 10.1016/j.jdeveco.2013.07.006

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