State intervention and the microcredit market: the role of business development services

Renaud Bourlès () and Anastasia Cozarenco ()

Small Business Economics, 2014, vol. 43, issue 4, 944 pages

Abstract: We analyze in this paper how various forms of state intervention can impact microfinance institutions’ lending behavior. Using a simple model where entrepreneurs receive individual uncollateralized loans, we show that, not surprisingly, state intervention through the loan guarantee increases the number of entrepreneurs receiving a loan. However, after modeling business development services (BDS) provided by the microfinance institution, we show that the loan guarantee can have a counterproductive effect by reducing the number of entrepreneurs benefiting from such services. We therefore analyze an alternative policy: BDS subsidization. We show that if BDS are efficient enough and are targeted toward less performing borrowers, then—for fixed government expenditures—such subsidies do better in terms of financial inclusion than the loan guarantee. Moreover, we argue that—under similar conditions—BDS subsidization alone does better in terms of financial inclusion than a mix of policies. Copyright Springer Science+Business Media New York 2014

Keywords: Microcredit; Loan guarantee; Business development services; Microfinance institution; D82; G20; G21; G28; H21; L26 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (9)

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Related works:
Working Paper: State intervention and the microcredit market: the role of business development services (2014)
Working Paper: State Intervention and the (Micro) Credit Market in Developed Countries: Loan Guarantee and Business Development Services (2013)
Working Paper: State Intervention and the (Micro)Credit Market in Developed Countries: Loan Guarantee and Business Development Services (2013)
Working Paper: State intervention and the (micro)credit market in developed countries: loan guarantee and business development services (2013)
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DOI: 10.1007/s11187-014-9578-0

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