Competitive Microcredit Markets: Differentiation and Ex-Ante Incentives for Multiple Borrowing
We analyze an oligopolistic microcredit market characterized by asymmetric information and institutions that can offer only one type of contract. We study the effects of competition on contract choice when small entrepreneurs can borrow from more than one institution due to the absence of credit bureaus. We show that appropriate contract design can eliminate the ex-ante incentives for multiple borrowing. Moreover, when the market is still largely unserved and particularly risky, a screening strategy leading to contract differentiation and credit rationing is unambiguously the most effective to avoid multiple borrowing.
Number of Pages in PDF File: 25
Keywords: Microfinance, Competition, Credit Bureaus, Multiple Borrowing, Credit Rationing
JEL Classification: G21, L13, L31, O16working papers series
Date posted: May 5, 2010
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo4 in 0.516 seconds