We develop a tractable model of competition among motivated MFIs. We find that equilibria may or may not involve double-dipping (and consequently default), with there being double-dipping whenever the MFIs are very profit-oriented. Moreover, in an equilibrium with double-dipping, borrowers who double-dip are actually worse off compared to those who do not. Further, for intermediate levels of motivation, there can be multiple equilibria, with a doubledipping equilibrium co-existing with a no default equilibrium. Interestingly, an increase in MFI competition can lower efficiency, as well as increase the extent of double-dipping and default. Further, the interest rates may go either way, with the interest rate likely to increase if the MFIs are very motivated.
Micro-finance competition, motivated MFIs, double-dipping, default
GUHA, Brishti and Roy Chowdhury, Prabal.
Micro-finance Competition: Motivated Micro-lenders, Double-dipping and Default. (2013). Research Collection School Of Economics.
Available at: http://ink.library.smu.edu.sg/soe_research/1326
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