Borrower targeting under microfinance: Competition with motivated microfinance institutions and strategic complementarity

• Main Authors: Guha, Brishti, ROY CHOWDHURY, Prabal
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2014
• Subjects: Microfinance competition; Motivated MFIs; Inequality; Borrower targeting; Double-dipping; Coordination; Finance
• Online Access: https://ink.library.smu.edu.sg/soe_research/2257; https://ink.library.smu.edu.sg/context/soe_research/article/3256/viewcontent/Guha_et_al_2014_The_Developing_Economies.pdf
• Institution: Singapore Management University

We examine how increased competition among motivated microfinance institutions (MFIs) impacts the poorest borrowers’ access to microfinance. We find that competition depends on inequality, technology, and the possibility of double-dipping (borrowing from several sources). Without competition, even a motivated MFI may lend to the not-so-poor in preference to poor borrowers. If double-dipping is feasible, competition may encourage lending to the poor. The presence of double-dipping is critical for MFI competition to have a positive effect. When double-dipping is feasible, MFI coordination may worsen borrower targeting whenever inequality is intermediate. We discuss policy implications dealing with double-dipping, MFI coordination, and competition.