Banks & microbanks

Just came across a fascinating study by Jonathan Morduch & co-authors, who find that an increased presence of formal banks in a given economy pushes “commercially-oriented” (for-profit) microbanks towards serving a poorer segment of clients.   I find this simultaneously intuitive and counter-intuitive: intuitive that competition pushes banks to expand their target market, but rather surprising that the expansion of large banks (who are generally seen as bystanders in discussions of financial access for the poor) may increase access to financial services in the end.  Interestingly, the authors believe this to be one of the first studies of competition between microbanks & formal banks, pointing to a fantastic avenue for research as the microfinance sector continues to grow & formalize.

Also, my favorite phrase from this paper?  “Informationally challenged borrowers,” i.e. those who lack the appropriate documentation (ID, land titles, etc.) to obtain a formal bank loan.

3 thoughts on “Banks & microbanks

  1. Might “documentationally challenged borrowers” be a better name, to distinguish them from those who lack even information on what financial services are available, or how to best take advantage of them?

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