New Actors in Microfinance Lending: The Role of Regulation and Competition in Latin America
Microfinance institutions (MFIs) provide funds to poor communities that were previously excluded from credit, and to the surprise of many, these institutions often boast high returns for investors. As a result, new actors are beginning to play a more prominent role in the microfinance sector, providing financial services for low-income citizens around the world. In addition, the state is increasingly involved in regulating this sector. Using firm-level data on microfinance institutions in Latin America, this article assesses the role that increased competition, state actors, international actors, and macro-political variables play in MFIs’ ability to attract borrowers. The analysis illustrates that while increased competition and domestic political economy factors decrease the number of borrowers at each firm, regulation and international involvement have a positive effect on MFIs’ ability to attract borrowers.