International debate persists about the effectiveness of microcredit for poverty alleviation. Much of this debate is due to discipline-specific research approaches, methodological complexities, and a lack of focus on fundamental issues. Microfinance organisations around the world do not operate in a vacuum: other forms of collateral-free lending in various countries must be taken into account. We illustrate our argument with a study of collateral-free lending in Indonesia’s Yogyakarta region. Focused on the fundamental issue of competitive impact, we examine formal and informal microcredit through in-depth interviews with borrowers and lender representatives, permitting triangulation from multiple perspectives. Importantly, our study includes current and previous borrowing across formal and informal microcredit. We find two distinct informal schemes used by microbusinesses, one of which borrowers perceive as more effective than formal microfinance. We also find a mismatch of incentives and strategic objectives in the formal microcredit scheme. To help explain these phenomena, we conceptualise borrower needs and microcredit schemes along financial and operational dimensions, and develop a framework of business and profit logics that helps identify how shifts therein influence the competition scenario. We discuss implications for microfinance policy and practice around the world, and provide suggestions for further research.