Does the Grameen Bank exert market power over borrowers?

Abstract

In this article, we use the recently developed stochastic frontier estimator of market power to test whether or not the Grameen Bank’s lending rates are consistent with marginal cost pricing. We find that they are not and, on average, the markup is about 3% above marginal cost. However, the markup is considerably dwarfed when compared to the markups charged by commercial microfinance institutions. Their lending rates are reported to range from 97% to 165% above marginal cost.

Keywords:

• Grameen
• market power
• stochastic frontier
• microfinance

JEL Classification:

• D21
• D43

Notes

¹ Bangladeshi Nobel Peace Prize winner in 2006.

² Rather than the Lerner index

³ Since

⁴ Since Assefa et al. (2013) estimate the Lerner index () as the measure of market power, then . The estimates for L range from 0.492 to 0.622 (Table 4, p. 776, Assefa et al., 2013).