This paper provides new insight into the question of why we have not seen microfinance pro- grams lift beneficiary regions out of poverty. We suggest that the explanation may lie in the industry choice of microfinance participants: if borrowers tend to enter imperfectly competitive sectors, such as retail, there may be a “business-stealing” effect that reduces incomes of existing businesses. Our model shows that microfinance may lower total incomes at the village level. The result is related to the classic [Mankiw and Whinston, 1986] result on excess entry. The results imply that microfinance organizations may want to steer recipients away from the petty retail sector, in some markets.
- microfinance; business stealing; excess entry
Publication DateWinter March 6, 2017
Citation InformationCatherine C de Fontenay and Callum Wood. "microfinance-raising-village-2017-02-10.pdf" (2017)
Available at: http://works.bepress.com/catherine_de_fontenay/17/