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Competition, Performance and Portfolio Quality in Microfinance Markets

Ashim Kar () and Ranjula Bali Swain ()
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Ranjula Bali Swain: Misum, Stockholm School of Economics

The European Journal of Development Research, 2018, vol. 30, issue 5, 842-870

Abstract: Abstract Growing competition in microfinance has been blamed for multiple borrowing, over-indebtedness and loan repayment crisis in recent times. Using the Boone indicator as a proxy for competition, in this paper we investigate how competition impacts the outreach, financial performance and loan portfolio quality of microfinance institutions (MFIs). The analysis is based on data from 568 MFIs in ten vibrant microfinance markets (Bangladesh, Bolivia, Ecuador, India, Indonesia, Mexico, Nepal, Nicaragua, Peru and Philippines) for the period 2003–2014. We control for potential endogeneity of MFI performance, competition and other covariates by employing the generalized method of moments (GMM) estimation technique. We find that increased competition leads to higher profitability and better loan portfolio quality of the sampled MFIs, but worsens depth of outreach to the poor, which is an indication of mission drift.

Keywords: microfinance institutions; competition; outreach; financial performance; panel data IV estimation; stochastic frontier model; Boone indicator (search for similar items in EconPapers)
Date: 2018
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Working Paper: Competition, performance and portfolio quality in microfinance markets (2014) Downloads
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