Competitive microcredit markets: differentiation and ex ante incentives for multiple borrowing

casini, paolo;

I analyse an oligopolistic microcredit market characterized by asymmetric information on the riskiness of borrowers. I study the effects of competition when, due to the absence of credit bureaus, small entrepreneurs can borrow from more than one institution. I show how contract design can influence the ex ante incentives for multiple borrowing. Our model predicts that, under some conditions, a screening strategy based on contract differentiation and credit rationing can avoid multiple borrowing.