Expansion and welfare in microfinance: A screening model

Ratul Lahkar () and Viswanath Pingali

Economic Modelling, 2016, vol. 53, issue C, 1-7

Abstract: The expansion of microfinance has triggered concerns of rising indebtedness, and higher default and interest rates. Using a screening model, we show that even if interest and default rates increase due to expansion, borrower welfare may improve. This is because: (i) all borrowers previously denied credit can obtain loans, and (ii) screening costs for pre-existing borrowers go down. Hence, policies that seek to regulate interest and screening levels can be counterproductive.

Keywords: Microfinance; Screening; Separating equilibrium (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:53:y:2016:i:c:p:1-7

DOI: 10.1016/j.econmod.2015.11.012

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