Competition and the Performance of Microfinance Institutions

Abstract

This paper examines the relationship between competition and the performance of microfinance institutions (MFIs). We measure competition by constructing a Lerner index. Next, we assess the association between increased competition among MFIs on the one hand and outreach and loan repayment performance on the other. The empirical investigation is based on data from 362 MFIs in 73 countries for the period 1995-2008. Based on our measure of competition we do find a general trend of increased competition in microfinance during the last decade. Our econometric analysis provides evidence that competition among MFIs is negatively associated with various measures of performance.

Keywords: Microfinance Institutions, Competition, Financial Intermediation

JEL Classification: G21, L1, O16