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How Rising Competition Among Microfinance Institutions Affects Incumbent Lenders* 

Authors


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    Thanks to Fulbright IIE for research funding and to Joanitah Kirunda, Robert Apell and the staff of FINCA Uganda for invaluable assistance with gathering and entering data.

Abstract

This article uses data from Uganda's largest incumbent microfinance institution to analyse the impact of entry by competing lenders on client behaviour. We observe that rising competition does not lead to an increase in client dropout rate, but induces a decline in repayment performance and savings deposited with the incumbent, suggesting rising multiple loan-taking by clients. This joint effect on dropout and repayment is consistent with some negative information about clients and is being shared across lenders. However, the observed decline in repayment rates in a context of rising multiple loan-taking shows that information sharing about clients is far from complete.

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