Lending technologies, competition and consolidation in the market for microfinance in Bolivia

Sergio Navajas, Jonathan Conning and Claudio Gonzalez-Vega
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Sergio Navajas: USAID|Bolivia, La Paz, Bolivia, Postal: USAID|Bolivia, La Paz, Bolivia
Claudio Gonzalez-Vega: Ohio State University, Columbus, OH, USA, Postal: Ohio State University, Columbus, OH, USA

Journal of International Development, 2003, vol. 15, issue 6, 747-770

Abstract: Innovations in lending technologies and market saturation have made La Paz, Bolivia one of the most rapidly changing and competitive microfinance markets in the world. Two lenders stand out: the pioneer BancoSol, which first profitably expanded the loan market with group liability loans, and the later entrant Caja Los Andes, which offered individual liability loans using costlier screening. Using a simple model of credit market competition with moral hazard and adverse selection we analyse how the terms of loan contracts were adapted to changes in competition and how borrowers' incentive to remain diligent and repay loans was affected. Hypothesized behaviour derived from the model is tested and shown to be consistent with empirical evidence from loan records and a household survey. Copyright © 2003 John Wiley & Sons, Ltd.

Date: 2003
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Working Paper: Lending Technologies, Competition, and Consolidation in the Market for Microfinance in Bolivia (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jintdv:v:15:y:2003:i:6:p:747-770

DOI: 10.1002/jid.1024

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