Abstract
The purpose of this paper is to examine the effect of competition and regulation on Microfinance Institutions (MFIs) outcomes in India. Using data for 60 MFIs from the MIX Market database for a period of five years from 2008-09 to 2012-13, panel models are estimated for the empirical examinations. In the modeling framework, constructed Lerner’s Index as competition proxy and regulate dummy as regulatory intervention proxy are introduced as interest variables along with the MFI specific and Macro specific control variables to examine their effect on MFIs outcomes. The study reveals that competition strengthens the outreach, promotes operating efficiency, deteriorates the loan portfolio quality and adversely affects the MFIs profitability. While the regulatory intervention creates some accommodative space for the MFI borrowers, improves MFIs efficiency partially and dampens loan repayments and portfolio quality and profitability via “roe” in India. Our results have also implications on MFIs, fund provider, regulator, government and policy research practitioners. This study contributes towards filling gap in the literature by extending the analysis of the effect of competition and regulation on MFI outcomes to a cross-section of states in India in a panel data framework.
Highlights
The developing economies have witnessed a rapid proliferation of microfinance institutions (MFIs)
The results suggest that the mean value of the Lerner’s Index (LI) is 0.392, which suggests that the competition among Microfinance Institutions (MFIs) is high
The effect of competition and regulation on MFI outcomes has not been much studied systematically in the Indian microfinance space which we fill with the findings of our study
Summary
The developing economies have witnessed a rapid proliferation of microfinance institutions (MFIs). To ensure the healthy competition in the microfinance industry, governments in many economies have put in place strict regulations. Regulatory intervention of Andhra Pradesh Government in 2010 followed by Reserve Bank of India regulation for entire India has largely impacted the MFIs in the country. As the effect of competition and regulation on MFI outcomes are highly understudied in India, and this being such an important area from the strategic perspective, this study makes an attempt to fill this gap in the existing stock of microfinance literature
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