Development of bank microcredit

Jose Cao-Alvira and Luca Deidda

The North American Journal of Economics and Finance, 2020, vol. 51, issue C

Abstract: We analyze the process by which banks enter the microcredit market while still engaging in traditional credit practices. For this we study a competitive credit market with adverse selection, where lenders are endowed with a screening technology capable of extracting an informative signal about a borrower’s quality if enough time is devoted to process the loan application. The time necessary for signal extraction depends on the borrower’s informational transparency. In the presence of opaque and transparent borrowers, depending on economy parameters, either a separating equilibrium with standard credit or microcredit prevails or a pooling equilibrium with either loan contract prevails.

Keywords: Microcredit; Bank MFI; Asymmetric Information; Screening; Opaqueness (search for similar items in EconPapers)
JEL-codes: G14 G21 G28 O16 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Development of Bank Microcredit (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:51:y:2020:i:c:s1062940818305837

DOI: 10.1016/j.najef.2019.101077

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