Impact Evaluation of Competition in Microfinance
Principal Researcher: Prof. Sendhil Mullainathan (Harvard), Prof. Dean Karlan (Yale) and Annie Duflo
Partner Organization: Grameen Koota, Karnataka

With the rapid growth of the microfinance in India, there is increasing competition in the sector. MFIs are expanding aggressively to increase their outreach and scale up their operations. This study seeks to investigate the impact of competition on both MFIs and their clients. How much competition is good for the sector? Does competition bring out the best in MFIs and do clients benefit?  

There has always been a trade-off between profitability and the social goals of an MFI. How does competition affect this balance? Is the MFI able to continue to serve low-income households? Or do they switch to the richer households? Do competing MFIs compete for the same clients? Or does the concern of multiple borrowing lead to new clients who have not been served by other MFIs? What is the impact on repayment rates in this scenario? 

Ideally, the MFI clients should benefit from competition. It should lead to better service, lower interest rates, and better products. Access to more credit should lead to more investment and income and should ideally translate into reduced poverty. The study seeks to test this theory. How does access to more credit impact loan usage, and does it really result in increased household income? Or does more credit lead to multiple borrowing and over-indebtedness, which may not be financially sustainable? 

CMF Research Associate: Veena Jayaram


Project Related Documents:
Competition Study Project Proposal, [30 K]

CMF Working Paper on Competition