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Micro-finance Competition: Motivated Micro-lenders, Double-dipping and Default

Author

Listed:
  • Brishti Guha

    (Department of Economics, Singapore Management University, 90 Stamford Road, Singapore 178903)

  • Prabal Roy Chowdhury

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

  • Brishti Guha & Prabal Roy Chowdhury, 2012. "Micro-finance Competition: Motivated Micro-lenders, Double-dipping and Default," Working Papers 04-2012, Singapore Management University, School of Economics.
    • Handle: RePEc:siu:wpaper:04-2012
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    References listed on IDEAS

    as
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    More about this item

    Keywords

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

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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