Review of Finance Vol. 14 No. 3 2010
Franchising Microfinance
Abstract
Financial intermediaries worldwide are seeking mechanisms for participating in micro lending. Using informed “local capitalists” as bank's on-lenders fails due to borrowers' incentive to default with multiple credit sources. A coalition of local capitalists may not resolve the problem in the presence of a monopoly moneylender with superior skills in lending and enforcement. A credible competitive threat to the moneylender can only arise if the local capitalist coalition also provides information sharing benefits that lower their cost of lending vis-à-vis the moneylender. Franchising allows local capitalists to form such a coalition. We analyze conditions under which welfare-enhancing franchising would obtain.
- DOI
- 10.1093/rof/rfp005
- Volume
- 14
- Issue
- 3
- Pages
- 451-476
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref