Downscaling and Upscaling Lending for Inclusive Microcredit

The paper analyzes the equilibrium in an economy where commercial banks/microfinance institutions can choose to provide downscaling/upscaling lending. I show that externalities are entrenched in the acquisition of the knowledge to provide either downscaling or upscaling lending. More importantly, downscaling lending dominates upscaling lending because it is only when the formal financial institutions venture into downscaling lending that the highest social welfare can be attained