Borrower Targeting under Micro-finance Competition with Motivated MFIs

We examine how increased competition among motivated MFIs impacts the poorest borrowers’ access to microfinance. We find that it depends on inequality, technology and the possibility of double-dipping (borrowing from several sources). Without competition, even a motivated MFI may lend to the not-so-poor in preference to the poor borrowers. If double-dipping is feasible, competition may encourage lending to the poor. The presence of double-dipping is critical for MFI competition to have this positive effect. When double-dipping is feasible, MFI coordination may worsen borrower targeting whenever inequality is intermediate. We discuss policy implications dealing with double dipping, MFI co-ordination and competition.