Working Paper: CEPR ID: DP9165
Authors: Jonathan De Quidt; Thiemo Fetzer; Maitreesh Ghatak
Abstract: 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 analyzed, 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.
Keywords: for-profit; market power; microfinance; social capital
JEL Codes: D4; D82; G21; L4; O12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased market power (D43) | decreased borrower welfare (G51) |
| competition (L13) | borrower welfare outcomes similar to nonprofit lending (G51) |
| for-profit lenders (G21) | less likely to utilize joint liability lending (G51) |
| joint liability (K13) | at least as well off as individual liability (K13) |