Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/101049
Authors: 
Casini, Paolo
Year of Publication: 
2014
Series/Report no.: 
LICOS Discussion Paper Series 349
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.
Subjects: 
Microfinance
Competition
Altruism
Contract Menus
Credit Rationing
JEL: 
G21
L13
L31
O16
Document Type: 
Working Paper

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