Microfinance Competition with Motivated MFIs

This paper examines the effects of increased competition on borrower targeting. The authors find that competition, especially in markets where clients tend to take loans from more than lender (known as "double-dipping"), may actually improve MFIs’ targeting of poor clients. Additional findings include:

• MFIs may prefer to lend to the not-so-poor rather than the poor in absence of competition;
• Competition may encourage lending to the poor in the presence of double-dipping;
• MFI coordination may not necessarily improve MFI targeting.

The paper concludes by briefly discussing robustness issues, such as mission drift and contagion, client-maximizing MFIs, MFIs that manipulate interest rates, competition with more elastic donor funds, and generalizing the production function.