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

Renaud Bourlès () and Anastasia Cozarenco
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Anastasia Cozarenco: GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique

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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: Business development services; D82; G20; G21; G28; H21; L26; Loan guarantee; Microcredit; Microfinance institution (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (8)

Published in Small Business Economics, 2014, 43 (4), pp.931--944. ⟨10.1007/s11187-014-9578-0⟩

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Related works:
Journal Article: 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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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01474456

DOI: 10.1007/s11187-014-9578-0

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