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Micro-finance Competition: Motivated Micro-lenders, Double-dipping and Default

Brishti Guha () and Prabal Roy Chowdhury ()

No 01-2013, Working Papers from Singapore Management University, School of Economics

Abstract: We develop a tractable model of competition among socially motivated MFIs, so that the objective functions of the MFIs put some weight on their own clients' utility. We nd that the equilibrium involves double-dipping, i.e. borrowers taking multiple loans from different MFIs, whenever the MFIs are relatively profit-oriented. Further, double-dipping necessarily leads to default and inefficiency, and moreover, borrowers who double-dip face relatively higher transactions costs and are actually worse off compared to those who do not. Interestingly, an increase in MFI competition can increase the extent of doubledipping and default. Further, the interest rates may go either way, with the interest rate likely to increase if the MFIs are very socially motivated.

Keywords: Micro-finance competition; motivated MFIs; double-dipping; default; subsidized credit; interest cap. (search for similar items in EconPapers)
JEL-codes: C72 D40 D82 G21 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2013-01
New Economics Papers: this item is included in nep-ban, nep-mfd and nep-sea
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Citations: View citations in EconPapers (26) Track citations by RSS feed

Published in SMU Economics and Statistics Working Paper Series

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Related works:
Journal Article: Micro-finance competition: Motivated micro-lenders, double-dipping and default (2013) Downloads
Working Paper: Micro-finance competition: Motivated micro-lenders, double-dipping and default (2012) Downloads
Working Paper: Micro-finance competition: motivated micro-lenders, double-dipping and default (2012) Downloads
Working Paper: Micro-finance Competition: Motivated Micro-lenders, Double-dipping and Default (2012) Downloads
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