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Are microfinance markets monopolistic?

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  • Ashim Kumar Kar
  • Ranjula Bali Swain

Abstract

Do microfinance institutions (MFIs) operate in a monopoly, monopolistic competition environment or are their revenues derived under perfect competition markets? We employ the Panzar–Rosse revenue test on a global panel data to assess the competitive environment in which MFIs of five selected countries operate: Ecuador, India, Indonesia, Peru and Philippines, over the period 2005–2009. We estimate the static and the dynamic revenue tests, with analyses of the interest rate and the return on assets. We control for microfinance-specific variables such as capital-assets-ratio, loans-assets and the size of the MFI. The analyses also account for the endogeneity problem by employing the fixed-effects two-stage least squares and the fixed-effects system generalized method of moments. Our results suggest that MFIs in Peru and India operate in a monopolistic environment. We also find weak evidence that the microfinance industry in Ecuador, Indonesia and Philippines may operate under perfect competition.

Suggested Citation

  • Ashim Kumar Kar & Ranjula Bali Swain, 2018. "Are microfinance markets monopolistic?," Applied Economics, Taylor & Francis Journals, vol. 50(1), pages 1-14, January.
    • Handle: RePEc:taf:applec:v:50:y:2018:i:1:p:1-14
    DOI: 10.1080/00036846.2017.1310999
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    1. repec:ags:aaea22:335439 is not listed on IDEAS
    2. Ashim Kumar Kar & Ranjula Bali Swain, 2018. "Competition, Performance and Portfolio Quality in Microfinance Markets," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 30(5), pages 842-870, December.
    3. Al-Azzam, Moh'd & Mimouni, Karim & Smaoui, Houcem & Temimi, Akram, 2022. "Subsidies vs. deposits and cost inefficiency in microfinance," Journal of Economic Behavior & Organization, Elsevier, vol. 198(C), pages 212-235.
    4. Ranjula Bali Swain & Supriya Garikipati, 2019. "Microfinance in the Global South: Examining Evidence on Social Efficacy," Working Papers 201908, University of Liverpool, Department of Economics.
    5. Olga Gorelkina & Ioanna Grypari & Erin Hengel, 2019. "One strike and you’re out! The Master Lever’s effect on senatorial policy-making," Working Papers 201906, University of Liverpool, Department of Economics.
    6. Supriya Garikipati & Rebecca J. Docherty & Penelope A. Phillips-Howard, 2019. "What’s the bleeding problem? Policy and attitudes towards sustainable menstrual hygiene materials in India," Working Papers 201907, University of Liverpool, Department of Economics.
    7. Hossain, Shahadat & Galbreath, Jeremy & Hasan, Mostafa Monzur & Randøy, Trond, 2020. "Does competition enhance the double-bottom-line performance of microfinance institutions?," Journal of Banking & Finance, Elsevier, vol. 113(C).

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