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Micro-finance competition: motivated micro-lenders, double-dipping and default

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  • Guha, Brishti
  • Roy Chowdhury, Prabal

Abstract

We develop a tractable model of competition among motivated MFIs. We find that equilibria may or may not involve double-dipping (and consequently default), with there being double-dipping whenever the MFIs are very profit-oriented. Moreover, in an equilibrium with double-dipping, borrowers who double-dip are actually worse off compared to those who do not. Further, for intermediate levels of motivation, there can be multiple equilibria, with a double-dipping equilibrium co-existing with a no default equilibrium. Interestingly, an increase in MFI competition can lower efficiency, as well as increase the extent of double-dipping and default. Further, the interest rates may go either way, with the interest rate likely to increase if the MFIs are very motivated.

Suggested Citation

  • Guha, Brishti & Roy Chowdhury, Prabal, 2012. "Micro-finance competition: motivated micro-lenders, double-dipping and default," MPRA Paper 36116, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:36116
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    More about this item

    Keywords

    Micro-finance competition; motivated MFIs; double-dipping; default;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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