Microcredit markets in many regions are becoming more competitive. This is generally a good thing for borrowers.

These two commonly heard statements raise a number of questions for policy makers: How to measure the intensity of competition over time? And is competition among lenders always a good thing for borrowers? Or do credit markets, and microcredit markets in particular, have any special features which may change or modify the conventional view of competition? If so, what tools do regulators have to promote competition? The FAI Focus Note “Competition Policy in Microcredit Markets” provides some initial answers to these questions for policy makers who wish an introduction to the issue. To do this, the Focus Note combines general competition theory and policy with evidence from credit markets and microcredit in particular. Since competition involves winners and losers, the regulator’s dilemma here is identifying and making the tradeoffs necessary to find a level of competition appropriate to the stage of market development and in line with national objectives.