Relationship Between Competition And Interest Rate In The Microcredit Market

In the whole world,， developing small and medium-sized enterprises, microenterprises, individual operators, farmer, people financing problems still be outstanding.Small enterprises, farmers and other financing problems related to a country’s economicand social development and the establishment of a harmonious society in a global. Whilethe microcredit is an important source of funding for these groups.The development ofmicrocredit has the vital role in national economy sustainable development.Microcredit has got various national supports and promotion, but objectively, it stillhas many problems to be solved. One can’t be ignored is that microcredit interest ratesare too high, high interest rates affect the development of microcredit. Previously, thegovernment set a mandatory cap interest rates or subsidies the microcredit to solve theproblem of high microcredit interest rates, but these methods did not achieve the desiredeffects. However, in developing countries, the last ten years with the MFI intensecompetition, some scholars have found that competition may result in the lowest cost ofcredit and loan interest rate which is to be the most effective method.This article adopts the combination of theory and practice research methods, on onehand, we illustrate how does microcredit market competition have effect on the interestrate which is mainly analyzed by the information asymmetry theory, Bertrandcompetition theory and the paper establishes a model to specifically analysis on theinfluence of competition in interest rate. Thus it draws the following conclusion:microcredit market competition is not certain to have a downward pressure on theinterest rate. But which mainly depends on the incumbent microcredit institution’sbehavior, if the existing organization behavior tends to the monopolist, while marketcompetition will have a satisfactory result that interest rates decline. In other words, if theexisting main microfinance institution behaves as if in a competitive market, such asgather interests as long as it makes institutions break even, it will produce unsatisfactoryresults that interest rate and default rate may rise. On the other hand, the paper analyzesthe effect of the competition of Bolivia and Bangladesh in the microfinance market onthe microcredit interest rates. The conclusion of practical model is similar to the theory model. The behaviors of Bolivia microcredit institutions mainly tend to the monopolist,while market competition will have a satisfactory result that interest rates decline. TheBangladesh market shows different condition. The behaviors of Bangladesh microcreditinstitutions mainly behave as if in a competitive market. Although the Bangladeshmicrocredit market’s competition is very intense, microcredit interest rate has shown arising trend. Then this paper analyzes the Chinese microcredit market condition. Thecondition is similar to the Bangladesh’s condition. The competition is becoming morefierce in Chinese microcredit market.，the interest rate becomes higher in Chinesemicrocredit market.