Micro-finance competition: Motivated micro-lenders, double-dipping and default

Brishti Guha () and Prabal Roy Chowdhury ()
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Brishti Guha: Singapore Management University
Prabal Roy Chowdhury: Indian Statistical Institute, New Delhi

Discussion Papers from Indian Statistical Institute, Delhi

Abstract: We develop a tractable model of competition among motivated MFIs. We find that equilibria may or may not involve double-dipping (and consequently default), with there being double-dipping whenever the MFIs are very profit-oriented. Moreover, in an equilibrium with double-dipping, borrowers who double-dip are actually worse off compared to those who do not. Further, for intermediate levels of motivation, there can be multiple equilibria, with a doubledipping equilibrium co-existing with a no default equilibrium. Interestingly, an increase in MFI competition can lower efficiency, as well as increase the extent of double-dipping and default. Further, the interest rates may go either way, with the interest rate likely to increase if the MFIs are very motivated.

Keywords: Micro-finance competition; motivated MFIs; double-dipping (search for similar items in EconPapers)
JEL-codes: C72 D40 D82 G21 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2012-01
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