Competition,Loan Rates,and Information Dispersion in Nonprofit and For‐Profit Microcredit Markets

We describe the competitive environment of microcredit markets globally and we study the effects of competition on loan rates of microfinance institutions (MFIs). We use a new database from rating agencies, covering 379 for‐profit and nonprofit MFIs in 67 countries over 2002–2008. Controlling for interest rate ceilings and other country‐specific factors, we first find that nonprofits are relatively insensitive to industry‐wide concentration changes, while for‐profits charge significantly lower rates in less concentrated markets. Second, we find spillover effects between the for‐profit and nonprofit segments. Third, we show that the effects of concentration are consistent with an information dispersion mechanism.