| Abstract: |
While the theoretical literature has found that intense competition leads to
the poorest borrowers dropping out of the microfinance market, we do not
possess sufficient research accumulated for empirical analysis in this field.
This paper examines the empirical relationship between competition and wide
outreach—which measures how poor-borrower microfinance institutions (MFIs)
provide loans—and its accompanying effect, the impact of competition on
financial self-sufficiency (FSS), using abundant financial data for
socially-motivated MFIs between 2003 and 2006. We provide the first detailed
econometric analysis in this regard focusing on socially-motivated MFIs in
developing countries around the world. This paper finds that intense
competition worsens the wide outreach, showing that the poorest borrowers are
dropped from the microfinance lending portfolio. Moreover, the empirical
result indicates that the adverse effect of competition on wide outreach
declines as MFIs gain experience. Furthermore, this paper confirms that
competition does not worsen financial self-sufficiency (FSS) and hence does
not raise subsidy dependence. |