Competitive Microcredit Markets: Differentiation and Ex-Ante Incentives for Multiple Borrowing

25 Pages Posted: 5 May 2010

Multiple version iconThere are 2 versions of this paper

Date Written: January 2010

Abstract

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.

Keywords: Microfinance, Competition, Credit Bureaus, Multiple Borrowing, Credit Rationing

JEL Classification: G21, L13, L31, O16

Suggested Citation

Casini, Paolo, Competitive Microcredit Markets: Differentiation and Ex-Ante Incentives for Multiple Borrowing (January 2010). Available at SSRN: https://ssrn.com/abstract=1599532 or http://dx.doi.org/10.2139/ssrn.1599532

Paolo Casini (Contact Author)

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

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