Development of Bank Microcredit
|Title||Development of Bank Microcredit|
|Publication Type||Working Paper|
|Year of Publication||2019|
|Authors||Cao-Alvira, JJ, Deidda, LG|
|ISBN Number||978 88 68512 156|
|Keywords||asymmetric information, Bank MFI, Microcredit, Opaqueness, screening|
We analyze the process by which banks enter the microcredit market while still engaging in traditional credit practices. For this we study a competitive credit market with adverse selection, where lenders are endowed with a screening technology capable of extracting an informative signal about a borrower’s quality if enough time is devoted to process the loan application. The time necessary for signal extraction depends on the borrower’s informational transparency. In the presence of opaque and transparent borrowers, depending on economy parameters, either a separating equilibrium with standard credit or microcredit prevails or a pooling equilibrium with either loan contract prevails.