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Do banks and microfinance institutions compete? Microevidence from Madagascar

Pierrick Baraton () and Florian Leon
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Pierrick Baraton: CERDI, Université d'Auvergne, France

CREA Discussion Paper Series from Center for Research in Economic Analysis, University of Luxembourg

Abstract: In recent years, both microfinance institutions (MFIs) and banks across the world have been converging towards the financing of small enterprises with high financing needs. This paper scrutinizes whether banks and MFIs compete each other as a result of recent transfor- mations in both industries. In doing so, we study whether the loan strategy of a microfinance institution is shaped by the local presence of a bank. Specifically, we investigate whether bank proximity influences loan conditions provided by one of the largest microfinance institutions in Madagascar. We employ an original panel dataset of 32,374 loans granted to 14,834 borrowers over the period 2008-2014. We find that the closer a bank is located to a given MFI borrower, the larger the loan obtained and the less collateral required. These results are insensitive to several robustness tests for possible endogeneity of distance, sample selection issue, and alter- native specifications. In addition, findings are stronger for larger and more established (older) firms in line with our hypothesis.

Keywords: Microfinance; Banks; Competition; Loan conditions; Mission drift; Distance (search for similar items in EconPapers)
JEL-codes: G21 O16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-mfd and nep-pay
Date: 2018
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