 Does Competition in the Microfinance Industry Necessarily Mean Over-borrowing?Ratul Lahkar (), Viswanath Pingali and Santadarshan Sadhu No WP2012-12-01, IIMA Working Papers from Indian Institute of Management Ahmedabad, Research and Publication Department Abstract: In this paper we test the hypothesis of whether the presence of increasing number of microfinance institutions leads to over-borrowing. Some recent theoretical literature suggests that, in a joint liability setting, borrowers are more likely to borrow from multiple sources – without increasing their loan size – in order to better manage their risk due to partner default. Here, we test this hypothesis by utilizing a unique primary dataset generated through comprehensive surveys conducted in eight districts of Andhra Pradesh. Results suggest that over-borrowing and multiple loans are not necessarily synonymous. More broadly, as the number of credit agencies in a village increases, the average loan burden of villagers need not increase. Furthermore, there is an evidence of substitution from informal sources of credit to formal ones. Such substitution is greater with addition of microfinance institutions than with the addition of other formal lending agencies. Finally, we also find that the joint liability setup ensures that individuals at a greater risk of non-repayment are discouraged from obtaining MFI loans. Date: 2012-12-04 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:iim:iimawp:11462 Access Statistics for this paper More papers in IIMA Working Papers from Indian Institute of Management Ahmedabad, Research and Publication Department Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.