Journal of Financial Services Research

, Volume 46, Issue 1, pp 1–53

Banks and Microbanks

  • Robert Cull
  • Asli Demirgüç-Kunt
  • Jonathan Morduch


We combine two datasets to examine whether the presence of banks affects the profitability and outreach of microfinance institutions. We find evidence that competition matters. Greater bank penetration in the overall economy is associated with microbanks pushing toward poorer markets, as reflected in smaller average loans sizes and greater outreach to women. The evidence is particularly strong for microbanks relying on commercial-funding and using traditional bilateral lending contracts (rather than group lending methods favored by microfinance NGOs). We consider plausible alternative explanations for the correlations, including relationships that run through the nature of the regulatory environment and the structure of the banking environment, but we fail to find strong support for these alternative hypotheses.


Banks Depository institutions Micro finance institutions Mortgages 

JEL Classification



  1. Ahlin C, Lin J (2006) Luck or Skill? MFI Performance in Macroeconomic Context. BREAD working paper No. 132Google Scholar
  2. Ahlin C, Lin J, Maio M (2011) Where does microfinance flourish? Microfinance institution performance in macroeconomic context. J Dev Econ 95(2):105–120CrossRefGoogle Scholar
  3. Armendariz B, Morduch J (2005) The economics of microfinance. MIT Press, CambridgeGoogle Scholar
  4. Assefa E, Hermes N, Meesters A (2010) Competition and performance of microfinance institutions. University of Groningen, MimeoGoogle Scholar
  5. Baquero G, Hamadi M, Heinen A (2012) Competition, loan rates and information dispersion in microcredit markets. European School of Management and Technology Working Paper No. 12–02. BerlinGoogle Scholar
  6. Beck T, Demirgüç-Kunt A, Levine R (2000a) A new database on the structure and development of the financial sector. World Bank Econ Rev 14(3):597–605CrossRefGoogle Scholar
  7. Beck T, Levine R, Loayza N (2000b) Finance and the sources of growth. J Financial Econ 58(1–2):261–300CrossRefGoogle Scholar
  8. Beck T, Demirgüç-Kunt A, Levine R (2003) Law, endowments, and finance. J Financial Econ 70(2):137–181CrossRefGoogle Scholar
  9. Beck T, Demirgüç-Kunt A, Peria MSM (2007) Reaching out: access to and use of banking services across countries. J Financial Econ 85(1):234–266CrossRefGoogle Scholar
  10. Berger AN, Udell GF (1995) Relationship Lending and Lines of Credit in Small Firm Finance. J Bus 68(3):351–382CrossRefGoogle Scholar
  11. Brière M, Szafarz A (2011) Investment in microfinance equity: risk, return, and diversification benefits. Working Papers CEB 11–050, ULB—Universite Libre de BruxellesGoogle Scholar
  12. Chaudhury I, Matin I (2002) Dimensions and dynamics of microfinance membership overlap – a micro study from Bangladesh. Small Enterprise Develop 13(2):46–55CrossRefGoogle Scholar
  13. Clarke G, Cull R, Peria MSM, Sanchez S (2003) Foreign bank entry: experience, implications for developing economies, and agenda for further research. World Bank Res Observer 18(1):25–59CrossRefGoogle Scholar
  14. Cull R, Demirgüç-Kunt A, Morduch J (2007) Financial performance and outreach: a global analysis of leading microbanks. Econ J 117(517):F107–F133CrossRefGoogle Scholar
  15. Cull R, Demirgüç-Kunt A, Morduch J (2009) Microfinance meets the market. J Econ Perspect 23(1):167–192CrossRefGoogle Scholar
  16. Cull R, Demirgüç-Kunt A, Morduch J (2011) Does regulatory supervision curtail microfinance profitability and outreach? World Dev 39(6):949–965CrossRefGoogle Scholar
  17. Hermes N, Lensink R, Meesters A (2009) Financial development and efficiency of microfinance institutions. University of Groningen, MimeoGoogle Scholar
  18. Hermes N, Lensink R, Meesters A (2011) Outreach and efficiency of microfinance institutions. World Dev 39(6):938–948CrossRefGoogle Scholar
  19. Kaufmann D, Kraay A, Mastruzzi M (2007) Governance matters VI: governance indicators of 1996–2006. World Bank Policy Research Working Paper 4280. Washington, DCGoogle Scholar
  20. La Porta L, Rafael FL--S, Shleifer A, Vishny RW (1998) Law and finance. J Polit Econ 106(6):1113–1150Google Scholar
  21. Levine R (2005) Finance and growth: theory and evidence. In: Aghion P, Durlauf S (eds) Handbook of economic growth. Elsevier Science, AmsterdamGoogle Scholar
  22. Levine R, Loayza N, Beck T (2000) Financial intermediation and growth: causality and causes. J Monet Econ 46(1):31–77CrossRefGoogle Scholar
  23. Maksudova N (2010) Macroeconomics of microfinance: how do the channels work?. CERGE-EI Working Paper Series No. 423. PragueGoogle Scholar
  24. McIntosh C, de Janvry A, Sadoulet E (2005) How rising competition among microfinance institutions affects incumbent lenders. Econ J 115(506):987–1004CrossRefGoogle Scholar
  25. McIntosh C, Wydick B (2005) Competition and microfinance. J Dev Econ 78(2):271–298CrossRefGoogle Scholar
  26. Microbanking Bulletin (2005) Trend lines. Issue 10, No. 5, MarchGoogle Scholar
  27. Petersen MA, Rajan RG (1994) The benefits of lending relationships: evidence from small business data. J Finance 49(1):3–37CrossRefGoogle Scholar
  28. Petersen MA, Rajan RG (1995) The effect of credit market competition on lending relationships. Q J Econ 110(2):407–443CrossRefGoogle Scholar
  29. Petersen MA, Rajan RG (2002) Does distance still matter? The information revolution in small business lending. J Finance 57(6):2533–2570CrossRefGoogle Scholar
  30. Rajan RG, Zingales L (1998) Financial dependence and growth. Am Econ Rev 88(3):559–86Google Scholar
  31. Vanroose A, D’Espallier B (2013) Do microfinance institutions accomplish their mission? Evidence from the relationship between traditional financial sector development and microfinance institutions’ Outreach and performance. Appl Econ 45(15):1965–1982CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  • Robert Cull
    • 1
  • Asli Demirgüç-Kunt
    • 1
  • Jonathan Morduch
    • 2
  1. 1.The World BankWashingtonUSA
  2. 2.New York University and Financial Access InitiativeNew YorkUSA

Personalised recommendations