Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments October 5, 2020 erstellt
Description:
This paper studies how microfinance lenders with different profit orientations, namely non-profits and for-profits, design their lending contracts to extract borrower repayment in the context of rising competition among lenders. We develop a model of individual lending scheme where dynamic incentives are used to mitigate borrower strategic default that is exacerbated by competition. Specifically, we explore and compare how lenders choose ex-ante threat of canceling future loan renewal and interest rates under different competition level. We find that, regardless of competition, non-profits always charge lower interest rates and impose lower ex-ante threat of loan cancellation than for-profits. Therefore, non-profit lending generates higher borrower welfare than for-profit lending. In addition, non-profits respond to the rise in competition by increasing the ex-ante threat of cancellation to the level that induces repayment without reducing borrower welfare. For-profits, on the other hand, cancel future refinancing with certainty when borrowers default. Competition lowers the interest rates charged by for-profits, indicating that borrowers are more likely to benefit from rising in competition