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Market Structure and Borrower Welfare in Micro Finance

Market Structure and Borrower Welfare in Micro Finance

123/2013 Jonathan de Quidt, Thiemo Fetzer, and Maitreesh Ghatak
culture and development, working papers
The Economic Journal
https://doi.org/10.1111/ecoj.12591

123/2013 Jonathan de Quidt, Thiemo Fetzer, and Maitreesh Ghatak

Motivated by recent controversies surrounding the role of commercial lenders in microfinance, 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 analysed, 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 information frictions competition typically delivers similar borrower welfare to non-profit lending. In addition, for-profit lenders are less likely to use joint liability than non-profits.

Culture and Development

The Economic Journal

https://doi.org/10.1111/ecoj.12591