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Do Banks and Microfinance Institutions Compete? Microevidence from Madagascar

Author

Listed:
  • Pierrick Baraton

    (CERDI - Centre d'Études et de Recherches sur le Développement International - UCA [2017-2020] - Université Clermont Auvergne [2017-2020] - CNRS - Centre National de la Recherche Scientifique)

  • Florian Léon

    (FERDI - Fondation pour les Etudes et Recherches sur le Développement International, CERDI - Centre d'Études et de Recherches sur le Développement International - IRD - Institut de Recherche pour le Développement - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne)

Abstract

This paper examines whether the loan strategy of a microfinance institution (MFI) is shaped by the entry of a bank. Specifically, we investigate whether the distance between a borrower of an MFI and the closest bank influences loan conditions provided by the MFI. We use an original panel data set of 32,374 loans granted to 14,834 borrowers provided by one of the largest MFIs in Madagascar between 2008 and 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. We also find that the effect is stronger for clients that could be more easily caught by banks (i.e., large firms and clients without a previous relationship with the MFI).

Suggested Citation

  • Pierrick Baraton & Florian Léon, 2021. "Do Banks and Microfinance Institutions Compete? Microevidence from Madagascar," Post-Print hal-04234473, HAL.
    • Handle: RePEc:hal:journl:hal-04234473
    DOI: 10.1086/704158
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    Cited by:

    1. Christoph Sommer, 2022. "Unintended consequences of microfinance: Effects on credit access for small‐ and medium‐sized enterprises," Journal of International Development, John Wiley & Sons, Ltd., vol. 34(3), pages 564-586, April.

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