Dynamics of Market Share in The Microfinance Industry in Bangladesh

Chowdhury Mahmoud, Baqui Khalily and Syed Wadood

Working Papers from Institute of Microfinance (InM)

Abstract: The microfinance industry in Bangladesh has seen emergence of large variations in the size of the institutions operating in the market. Data from a recent survey of Pathrail union in Tangail district reveals that within the local market competition is becoming more and more intense over time. Market segmentation has emerged where some borrowers and MFIs opt for a package of low interest rates with low amount of loan disbursed and some other borrowers and MFIs settle for a package of high interest rates with high amount of loan disbursed. A Tobit regression estimation of member market shares in village micro credit market shows that size of the MFI, years of operation in the village, average loan size, deposit interest rates, loan amount disbursed for unique loan purposes (i.e., housing loan) are key determinants in determining MFI shares of a village microcredit market. The paper concludes that competition has increased in recent years since a large number of local small-size MFIs have started competing with national-level MFIs. There is no indication that one particular group of MFIs (i.e., large ones) could take over the control of the entire market by driving out another group (i.e., small ones). Increased product diversification is evident in the market, as well as competition in the interest rates being charged and loan amount being offered. Multiple membership is one strategy pursued by the MFIs while faced with increased competition. Within the small survey area, MFIs have exhibited a tendency to concentrate their operations in more economically advanced regions, whereas the reverse is true for economically backward regions. If this pattern is observed throughout the entire country in a future nationally representative survey, this would imply that the original poverty alleviation objective of micro credit would be compromised, since MFIs would tend to overlook economically backward regions. Therefore policy recommendation is to provide incentives to MFIs to operate in backward regions, and provide technical assistance to local small-scale MFIs for facing increased competition in the future.

Keywords: Microcredit; Market Share; Product and Provider Characteristics of Microcredit (search for similar items in EconPapers)
JEL-codes: C34 G21 L1 L11 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2010-04
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Dynamics of market share in the microfinance industry in Bangladesh (2009)
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