Title: Competition, fast growth and commercialization: Systemic credit risk in microcredit markets
Authors: Andreas Heinen - Universite de Cergy Pontoise (France)
Malika Hamadi - Birmingham Business School (United Kingdom) [presenting]
Abstract: A new copula-based measure of systemic credit risk in microcredit markets is introduced and its determinants for 37 countries from 2000 to 2014 are explored. We model the joint distribution of portfolio quality of all microfinance institutions (MFIs) in a given country using an equidependent copula and an empirical density for the marginal. The methodology is based on the idea that a higher level of dependence among MFIs in a given country is an indicator of potential fragility of the sector. We show that, after controlling for country effects, measures of competition, market penetration, commercialization and excessive growth of the sector, as well as the level of interest rates charged by MFIs in a country all increase the fragility of the microfinance sector, while lending to more women tends to reduce systemic risk. With this measure of systemic risk, we further compute the probability that a proportion of at least $20\%$ of MFIs in a country are in serious financial distress and our simulations captures a progressive increase in risk in many countries that experienced a repayment crisis.