Strategic Interaction in Undeveloped Credit Markets

Thomas Barnebeck Andersen*, Nikolaj Malchow-Møller

*Corresponding author af dette arbejde

    Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review


    This paper studies the strategic interaction between informal and formal lenders in undeveloped credit markets. In a model with adverse selection, loan seniority, market power, and differences in the cost of lending, it is shown that under general conditions a co-funding equilibrium will be a Nash outcome of the game. We demonstrate that a collateral requirement in connection with formal loans always generates a new co-funding equilibrium in which both lenders earn higher profits. A government subsidy to the formal lender may have the opposite effect. We relate our results to existing empirical evidence and the emerging discussion of how to best ensure financial viability and outreach of microfinance institutions.
    TidsskriftJournal of Development Economics
    Udgave nummer2
    Sider (fra-til)275-298
    Antal sider24
    StatusUdgivet - aug. 2006


    • Mikrofinansiering
    • Uformel økonomi
    • Udviklingssociologi