Evolution of market concentration and competition in the microfinance industry of Bangladesh
Abstract
Purpose
The purpose of this paper is to measure and track the evolution of market concentration and competition in the microfinance industry in Bangladesh by employing both the structural and non-structural measurement techniques.
Design/methodology/approach
By using a unique panel data set generated from the microcredit regulatory authority (MRA) annual reports, the sample includes 169 microfinance institutions (MFIs) and covers the period 2009-2014. The authors employed the Herfindahl-Hirschman index (HHI) and concentration ratio (CR) (largest 3, 8 and 20 MFIs) as structural measurement techniques and the Lerner index as a non-structural measurement technique. In addition, four different market indicators are used as representatives of deposit and credit markets to better explain the evolution of market concentration.
Findings
The results of HHI indicate that the sector is moderately concentrated and currently transitioning to an unconcentrated market. However, based on CR, the industry is still dominated by a few large MFIs. The Lerner index (non-structural approach) also confirmed that the level of competition is relatively high and likely to follow an inverted U-shape during the study period.
Practical implications
The findings of this study will enhance our understanding of the market structure in the Bangladesh’s microfinance industry so as to inform important policy prescriptions. The results also provide impetus to the relatively young MRA to nurture competition in the market; simultaneously, the findings prompt management of the MFIs to cope with a competitive market environment.
Originality/value
This study is one of the first of its kind that includes a large data sample of microfinance market for a single country by employing both structural and non-structural measurement approaches.
Keywords
Acknowledgements
The author is very grateful to anonymous reviewers for their constructive comments and suggestions on earlier versions of this paper. Their thoughtful remarks have substantially improved the quality of the article. The author has also benefited discussion from Dr VGR Chandran, Dr Lee Hwok-Aun, Dr Baseem Ben Soltane, Dr Shakil Quayes, Esubalew Assefa, Dr Zhang Cheng and Dr Abu Hanifa Md Noman while preparing this manuscript. All errors that remain are the author’s own responsibility.
Citation
Mia, M.A. (2018), "Evolution of market concentration and competition in the microfinance industry of Bangladesh", International Journal of Social Economics, Vol. 45 No. 6, pp. 989-1007. https://doi.org/10.1108/IJSE-10-2016-0281
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited