Competition, Loan Rates and Information Dispersion in Microcredit Markets

We describe the competitive environment of microcredit markets globally and we study the effects of competition on loan rates of microfinance institutions (MFIs). We use a new database from rating agencies, covering 379 for-profit and nonprofit MFIs in 67 countries over 2002-2008. First, we find that nonprofits are relatively insensitive to concentration changes, while for-profits charge significantly lower rates in less concentrated markets. We control for interest rate ceilings and other country-specific factors. Second, we find competitive pressures on nonprofits from increased for-profit market share. Third, we show that the effects of concentration are consistent with an information dispersion mechanism.