Microcredit and price competition: Standardize to differentiate

Arbeitspapier

Microfinance institutions, despite the presence of competition and informational asymmetries, typically offer a limited variety of contracts. Assuming price competition, we propose a simple theoretical explanation for this behavior and study its consequences in terms of strategic interaction and borrower welfare. We model an oligopolistic market in which Microfinance Institutions design their contracts and choose how many of them to offer. We find that when offering a menu is costly, MFIs always offer a single contract. Despite that, there exist equilibria in which MFIs coordinate and offer screening contracts, allowing them to extract a large fraction of the borrower welfare. We discuss the policy implications of our model in terms of price caps, market entry and outreach measurement.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: LICOS Discussion Paper ; No. 349

Classification and Topics

• Classification: Wirtschaft ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Oligopoly and Other Imperfect Markets ; Nonprofit Institutions; NGOs; Social Entrepreneurship ; Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
• Subject: Microfinance ; Competition ; Altruism ; Contract Menus ; Credit Rationing

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Casini, Paolo
• Event: Veröffentlichung
• (who): Katholieke Universiteit Leuven, LICOS Centre for Institutions and Economic Performance
• (where): Leuven
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/101049
• Last update: 10.03.2025, 11:42 AM CET