Determinants of Market Power in the Peruvian Regulated Microfinance Sector

Giovanna Aguilar () and Jhonatan Portilla
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Giovanna Aguilar: Pontificia Universidad Católica del Perú
Jhonatan Portilla: Pontificia Universidad Católica del Perú

Journal of Industry, Competition and Trade, 2020, vol. 20, issue 4, No 3, 657-688

Abstract: Abstract The objective of this study is to analyze the evolution and determinants of market power in Peru’s regulated microfinance sector during the period of January 2003 to June 2016. We estimate both a conventional Lerner index (LICON) and an efficiency-adjusted Lerner index (LIADJ) using information from a wide panel of microfinance institutions (MFIs), thus finding that the LIADJ is significantly greater than the LICON. This result confirms that not considering MFIs’ inefficiency leads to an underestimation of their market power. Both indices decreased until 2014, which indicates that regulated MFIs’ market power decreased significantly for more than a decade. Beginning in 2015, market power significantly grew; the largest entities as well as those with the highest efficiency have greater market power. This last result evidences the fulfillment of the efficient structure (ES) hypothesis. In addition, a less elastic demand for microcredit, a lower default risk, as well as the processes of mergers, takeovers, and changes in the business structure of some MFIs, increase market power. Finally, the MFIs that operate in localized areas exhibit greater market power.

Keywords: Microfinance; Competition; Lerner index; Market power (search for similar items in EconPapers)
JEL-codes: G21 L11 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s10842-019-00318-z

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