ABSTRACT
This chapter examines the interactions among financial service providers when markets become competitive and particularly explores whether and how these interactions influence the double bottom line of microfinance institutions (MFIs), in terms of financial results and outreach. Markets allow buyers and sellers to exchange goods and services. In the exchange process they establish a price. This also applies to microfinance: there are several thousands of specialised microfinance institutions offering their services, and there are tens of millions of household-enterprises and individuals contracting loans and making deposits. Competition is, in principle, good for clients of microfinance institutions, because it forces MFIs to become more efficient, innovative and client-centred. The declining interest rates in microfinance may be good news for borrowers, but microfinance practitioners are less enthusiastic. Competitive pressures are further aggravated by the entry of commercial banks into the microfinance market. The most obvious response to competition for an individual MFI is to grow and expand its loan portfolio.
