ON THE PROVISION OF MICRO LOANS - MICROFINANCE INSTITUTIONS AND TRADITIONAL BANKS
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This paper employs a utility maximizing model to answer two questions: (i) what are the cost-related factors that determine the supply of a loan by traditional banks and microfinance institutions (MFIs)?; and (ii) why is the supply of micro loan zero under a bank’s maximization problem while it is positive under the maximization problem of an MFI? We find that costs associated with default, information asymmetry and liability determine the supply of a loan by a financial institution. Furthermore, we show that under certain conditions (that we derive) a bank may make a loss if it provides micro loan. As a result, it does not supply micro loan.
Abstract
This paper employs a utility maximizing model to answer two questions: (i) what are the cost-related factors that determine the supply of a loan by traditional banks and microfinance institutions (MFIs)?; and (ii) why is the supply of micro loan zero under a bank’s maximization problem while it is positive under the maximization problem of an MFI? We find that costs associated with default, information asymmetry and liability determine the supply of a loan by a financial institution. Furthermore, we show that under certain conditions (that we derive) a bank may make a loss if it provides micro loan. As a result, it does not supply micro loan.
참고문헌 (19)
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