Abstract
Do microfinance institutions (MFIs) operate in a monopoly, monopolistic competition environment or are their revenues derived under perfect competition markets? We employ the Panzar-Rosse revenue test on a global panel data to assess the competitive environment in which MFIs of five selected countries operate: Ecuador, India, Indonesia, Peru and Philippines, over the period 2005-2009. We estimate the static and the dynamic revenue tests, with analyses of the interest rate and the return on assets. We control for microfinance-specific variables such as capital-assets-ratio, loans-assets and the size of the MFI. The analyses also account for the endogeneity problem by employing the fixed-effects two-stage least squares and the fixed-effects system generalized method of moments. Our results suggest that MFIs in Peru and India operate in a monopolistic environment. We also find weak evidence that the microfinance industry in Ecuador, Indonesia and Philippines may operate under perfect competition.
