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Development of Bank Microcredit

Jose Cao-Alvira () and Luca Deidda ()

Working Paper CRENoS from Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia

Abstract: We analyze the process by which banks enter the microcredit market while still engaging in traditional credit practices. For this we study a competitive credit market with adverse selection, where lenders are endowed with a screening technology capable of extracting an informative signal about a borrower's quality if enough time is devoted to process the loan application. The time necessary for signal extraction depends on the borrower's informational transparency. In the presence of opaque and transparent borrowers, depending on economy parameters, either a separating equilibrium with standard credit or microcredit prevails or a pooling equilibrium with either loan contract prevails.

Keywords: screening; Opaqueness; Microcredit; Bank MFI; asymmetric information (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-ban and nep-mfd
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https://crenos.unica.it/crenos/node/7210
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Journal Article: Development of bank microcredit (2020) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:cns:cnscwp:201905

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