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

Guha, Brishti and Roy Chowdhury, Prabal (2012): Micro-finance competition: motivated micro-lenders, double-dipping and default.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Micro-finance competition; motivated MFIs; double-dipping; default
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory; D - Microeconomics > D4 - Market Structure, Pricing, and Design

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