Microcredit market structure and financing obstacles for micro firms

Using rich survey data of micro firms in Eastern Europe and Central Asia, I analze the effect of recent changes in microcredit market structure on perceived financing obstacles. Controlling for country, time and firm characteristics, lower microcredit market concentration is associated with firms reporting financing as a more severe obstacle to their operations. This indicates that rising competition between microfinance institutions may have led to reduced financial access. The results are consistent with information-based theoretical predictions that lenders with less market power have weaker incentives to invest in lending relationships with opaque firms and that greater competition aggravates borrower screening.