JBS Vol 16. Num 1_2. 2014 - How Competitive is the NGO-MFI Market? Evidence from Two Districts of Bangladesh

The microfinance institutions in Bangladesh have evolved over time in terms of coverage, product design, pricing and also source of finance. This study asks if the competition among Microfinance Institutes (MFIs) has any role in the evolution of this sector. Using branch level information of the MFIs in two districts — Rangpur and Lalmonirhat, we show that there are indications for competition in all three spaces — location, product and price. Estimation results indicate that as the number of MFIs increases in a union (and also in the bordering unions), an MFI tends to i) locate their branch in a union where greater number of MFIs already exist, ii) offer higher number of products and iii) lower prices. This gives a borrower wider range of products to choose from a larger number of MFIs with lower nominal price and more lenient terms and conditions. Therefore, while crafting policies or regulations for microfinance industry one should be aware of the competitiveness of this market (or lack thereof) and its impact on prices and products and thus the welfare of the borrowers.