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on Microfinance |
| By: | Paolo Casini |
| Abstract: | Microfinance institutions, despite the presence of competition and informational asymmetries, typically offer a limited variety of contracts. Assuming price competition, we propose a simple theoretical explanation for this behavior and study its consequences in terms of strategic interaction and borrower welfare. We model an oligopolistic market in which Microfinance Institutions design their contracts and choose how many of them to offer. We find that when offering a menu is costly, MFIs always offer a single contract. Despite that, there exist equilibria in which MFIs coordinate and offer screening contracts, allowing them to extract a large fraction of the borrower welfare. We discuss the policy implications of our model in terms of price caps, market entry and outreach measurement. |
| Keywords: | Micronance, Competition, Altruism, Contract Menus, Credit Rationing |
| JEL: | G21 L13 L31 O16 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:lic:licosd:34914&r=mfd |
| By: | Kaniska Dam; Prabal Roy Chowdhuri (Division of Economics, CIDE) |
| Abstract: | We develop a model of competition among socially motivated microfinance institutions (MFIs), where the MFIs offer repayment-based incentive contracts to credit agents. The agents gather information regarding a borrower, and may, or may not collude with the borrower, taking bribes in return for not acting upon their information in case of collusion. We show that competition may either increase, or decrease incentives, with incentives becoming less high powered if the MFIs are not too motivated. Further, whenever either the moral hazard problem is relatively severe and/or the MFIs are not too motivated, competition increases default, thus providing a possible explanation for the recent episodes of crisis in the MFI sector. Interestingly, the effects of competition are linked to mission drift, i.e., whether the MFIs in the concerned countries are more, or less motivated. Further, default problems may worsen in case competition is accompanied by greater access to donor funds. |
| Keywords: | Microfinance; competition; collusion; staff incentive schemes; monitoring. |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:emc:wpaper:dte579&r=mfd |
| By: | Katarzyna Cieslik; Marek Hudon; Philip Verwimp |
| Abstract: | This study explores the social entrepreneurial potential of the rule-breaking practices of microfinance programs’ beneficiaries. We empirically apply the positive theory of social entrepreneurship that views social entrepreneurship as a pursuit of neglected positive externalities. Using the storyboard methodology, the paper examines the strategies employed by the poor in Burundi to bypass institutional rules. We argue that illicit practices can in fact be interpreted as value-creating entrepreneurial acts and be symptomatic of an emergent social-entrepreneurial orientation. Our findings cast a spotlight on issues of agency and empowerment, questioning and contextualizing the definition of social value. |
| Keywords: | entrepreneurship; rule-breaking; social value; microfinance; Africa; Burundi |
| Date: | 2015–04–23 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/198935&r=mfd |