Competition Between Microfinance Institutions and the Formal Banking Sector

Microfinance Institutions (MFIs) lend to impoverished communities with the goal of spurring increases in income, consumption, business activity, and decision making power. My research looks at how the formal banking sector responds to MFI branch entry. I use data from a randomized control study done by Banerjee et al. (2013) which allows me to control for endogeneity biases associated with MFI entry. I look at how bank loan take-up and bank loan amounts change over the course of the study as well as how clientele characteristics compare between those that borrow from banks and MFIs. I find no significant differences in bank loan take-up or bank loan amount between treatment and control areas, suggesting the banking sector does little to respond to competition from MFIs. I test this zero effect on a variety of different variables and parameters via a multitude of difference in difference estimators and I reach the same zero-effect conclusion. I find multiple significant differences in characteristics between MFI and bank borrowers. I conclude that MFIs and the formal banking sector operate in relatively separate marketspaces with little to no competition.

Grantor dc:publisher

University of Oregon

Year dc:date.issued

2017

Author dc:creator

• Monahan, Tia Jane

• Economics
• Development
• Microfinance
• Banking
• Competition
• Regression Analysis

Statement dc:rights

• Creative Commons BY-NC-ND 4.0-US

Language dc:language.iso

en_US

Handle dc:identifier.uri

https://hdl.handle.net/1794/22871

OAI record oai:identifier

https://scholarsbank.uoregon.edu/server/oai/request?verb=GetRecord&metadataPrefix=dim&identifier=oai%3Ascholarsbank.uoregon.edu%3A1794%2F22871