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Market Structure and Borrower Welfare in Microfinance

40 Pages Posted: 19 Dec 2014 Last revised: 1 Mar 2016

Jonathan de Quidt

Stockholm University - Institute for International Economic Studies (IIES)

Thiemo René Fetzer

London School of Economics & Political Science (LSE)

Maitreesh Ghatak

London School of Economics (LSE) - Department of Economics

Date Written: February 29, 2016

Abstract

Motivated by recent controversies surrounding the role of commercial lenders in microfinance, and calls for regulation of the sector, we analyze borrower welfare under different market structures, considering a benevolent non-profit lender, a for-profit monopolist, and a competitive credit market. To understand the magnitude of the effects analyzed, we simulate the model with parameters estimated from the MIX Market database. Our results suggest that market power can have severe implications for borrower welfare, while despite possible enforcement externalities competition typically delivers similar borrower welfare to non-profit lending.

Keywords: microfinance, market power, for-profit, social capital

JEL Classification: G21, O12, D4, L4, D82

Suggested Citation

de Quidt, Jonathan and Fetzer, Thiemo René and Ghatak, Maitreesh, Market Structure and Borrower Welfare in Microfinance (February 29, 2016). Available at SSRN: https://ssrn.com/abstract=2540048 or http://dx.doi.org/10.2139/ssrn.2540048

Jonathan De Quidt (Contact Author)

Stockholm University - Institute for International Economic Studies (IIES) ( email )

Stockholm, SE-10691
Sweden

Thiemo René Fetzer

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://personal.lse.ac.uk/fetzert

Maitreesh Ghatak

London School of Economics (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom
44 20 7852 3568 (Phone)
44 20 7955 6951 (Fax)

HOME PAGE: http://sticerd.lse.ac.uk/dps/adds/ghatak/cv-lse-sept02.pdf

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