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Microfinance Competition in the Presence of Moneylenders: Theory and Evidence

Shyamal Chowdhury, Prabal Roy Chowdhury, Joeri Smits · 2026 · arXiv (Cornell University)

DOI: 10.48550/arxiv.2610.12186 · cited by 0 works (OpenAlex) · open-access PDF

Spanish

Después de décadas de expansión de la microfinanciación y a pesar de cobrar tasas de interés más altas, los monopolistas siguen existiendo junto a las instituciones de microfinanciación (MFI). Desarrollamos un modelo dinámico con riesgo moral ex post, en el que los prestamistas utilizan préstamos de MFI para la producción y pueden confiar en los monopolistas para obtener préstamos de puente después de los choques para pagar los MFI y preservar el acceso futuro al crédito de MFI. Luego estudiamos cómo la competencia de los MFI forma la coexistencia entre los MFI y los monopolistas. El efecto de la competencia sobre el crédito de los MFI es ambiguo: puede debilitar los incentivos de reembolso o reemplazar a los monopolistas como prestamistas de puente. Por

Machine translation (Meta M2M100); the English original follows.

Abstract

After decades of microfinance expansion and despite charging higher interest rates, moneylenders continue to exist alongside microfinance institutions (MFIs). We develop a dynamic model with ex post moral hazard, in which borrowers use MFI loans for production and can rely on moneylenders for bridge loans after shocks to repay MFIs and preserve future access to MFI credit. We then study how MFI competition shapes the coexistence between MFIs and moneylenders. The effect of competition on MFI credit is ambiguous: it may weaken repayment incentives or replace moneylenders as bridge lenders. By contrast, competition unambiguously reduces moneylender credit. In a village-level randomized expansion in Bangladesh, stratified by baseline MFI presence, one additional MFI reduces the number of moneylender loans by roughly 30-40% two to three years later, with no detectable effect on MFI or overall borrowing. This suggests that, in markets where MFIs rely primarily on the threat of exclusion to induce repayment and moneylenders provide emergency finance, gains from additional MFI entry may be greater in less saturated areas.

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Topics: Microfinance, Competition (biology), Incentive, Economics, Monetary economics, Loan

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