State intervention and the microcredit market the role of business development services / Bourls̈, Renaud
By: Bourls̈, Renaud
Material type:
ArticlePublisher: Description: 931 - 944Subject(s): Microfinance Institutions | Business Development Services | Loan Guarantee | Microcredit
In:
Small Business EconomicsSummary: We analyze in this paper how various forms of state intervention can impact microfinance institutions' lending behavior. Using a simple model where entrepreneurs receive individual uncollateralized loans, we show that, not surprisingly, state intervention through the loan guarantee increases the number of entrepreneurs receiving a loan. However, after modeling business development services (BDS) provided by the microfinance institution, we show that the loan guarantee can have a counterproductive effect by reducing the number of entrepreneurs benefiting from such services. We therefore analyze an alternative policy: BDS subsidization. We show that if BDS are efficient enough and are targeted toward less performing borrowers, then-for fixed government expenditures-such subsidies do better in terms of financial inclusion than the loan guarantee. Moreover, we argue that-under similar conditions-BDS subsidization alone does better in terms of financial inclusion than a mix of policies.
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Articles
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Ahmedabad (HO) | (Browse shelf) | Vol. 43, Issue. 4 | Available | 018724 |
We analyze in this paper how various forms of state intervention can impact microfinance institutions' lending behavior. Using a simple model where entrepreneurs receive individual uncollateralized loans, we show that, not surprisingly, state intervention through the loan guarantee increases the number of entrepreneurs receiving a loan. However, after modeling business development services (BDS) provided by the microfinance institution, we show that the loan guarantee can have a counterproductive effect by reducing the number of entrepreneurs benefiting from such services. We therefore analyze an alternative policy: BDS subsidization. We show that if BDS are efficient enough and are targeted toward less performing borrowers, then-for fixed government expenditures-such subsidies do better in terms of financial inclusion than the loan guarantee. Moreover, we argue that-under similar conditions-BDS subsidization alone does better in terms of financial inclusion than a mix of policies.
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