Competition, Loan Rates and Information Dispersion in Microcredit Markets

ESMT Working Paper No. 12-02

LSF Working Paper Series No. 11-17

61 Pages Posted: 18 Feb 2012 Last revised: 14 Jul 2014

See all articles by Guillermo Baquero

Guillermo Baquero

ESMT European School of Management and Technology

Malika Hamadi

Surrey Business School

Andréas Heinen

University of Cergy-Pontoise - THEMA

Date Written: July 26, 2012

Abstract

We study the effects of competition on loan rates and loan portfolio quality in microcredit markets using a new database from rating agencies, covering 379 for-profit and nonprofit microfinance institutions (MFIs) in 67 countries over 2002-2008. First, we find competitive pressures from increased market share of for-profits. Second, we find that nonprofits are relatively insensitive to concentration changes, while they appear to sustain their competitive advantage stemming from proprietary information on borrowers. In contrast, for-profits charge significantly lower rates and exhibit improved portfolio quality in less concentrated markets. We show that this effect is consistent with an information dispersion mechanism.

Keywords: Loan rates, bank competition, microfinance, information dispersion, portfolio quality, nonprofit institutions

JEL Classification: D4, G21, L1, O1

Suggested Citation

Baquero, Guillermo and Hamadi, Malika and Heinen, Andréas, Competition, Loan Rates and Information Dispersion in Microcredit Markets (July 26, 2012). ESMT Working Paper No. 12-02 , LSF Working Paper Series No. 11-17, Available at SSRN: https://ssrn.com/abstract=2006485 or http://dx.doi.org/10.2139/ssrn.2006485

Guillermo Baquero

ESMT European School of Management and Technology ( email )

Schlossplatz 1
10117 Berlin
Germany

Malika Hamadi (Contact Author)

Surrey Business School

Surrey Business School
Guildford, Surrey GU2 7XH
United Kingdom

Andréas Heinen

University of Cergy-Pontoise - THEMA ( email )

33 boulevard du port
F-95011 Cergy-Pontoise Cedex, 95011
France

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
210
Abstract Views
1,577
rank
180,543
PlumX Metrics