| Abstract: |
This paper presents a model of the complete microcredit financing chain
investor MIV → MFI → micro-borrower, in which social-minded MIVs provide funds
only to those MFIs which do not exploit their bargaining power towards
micro-borrowers. The MFIs with the highest bargaining power do not use MIV
capital, since eschewing their market power is most costly for them.
Consistent with this prediction of the theoretical model, we find empirically
that the net interest margin, as a measure of MFI market power, negatively
affects the likelihood of using MIV finance. This lends support to the view
that social criteria play an effective role in MIVs’ investment policies,
thereby also impacting MFIs’ lending behavior. |