Franchising Microfinance
By Amit Bubna, Bhagwan Chowdhry
Review of Finance | July 2010
Citation
Bubna, Amit., Chowdhry, Bhagwan. Franchising Microfinance Review of Finance .
Copyright
Review of Finance, 2010
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Abstract
Financial intermediaries worldwide are seeking mechanisms for participating in micro lending. Using informed “local capitalists” as bank’s on-lenders fails due to borrowers’ incentive to default with multiple credit sources. A coalition of local capitalists may not resolve the problem in the presence of a monopoly moneylender with superior skills in lending and enforcement. A credible competitive threat to the moneylender can only arise if the local capitalist coalition also provides information sharing benefits that lower their cost of lending vis-`a-vis the moneylender. Franchising allows local capitalists to form such a coalition.We analyze conditions under which welfare-enhancing franchising would obtain.

Bhagwan Chowdhry is a Professor of Finance at the Indian School of Business (ISB). He began his teaching career at UCLA Anderson in 1988 where he found an opportunity to work with and learn from outstanding faculty colleagues and an ability to work with students on projects that will make a difference in the world. During his tenure, he has also been a visiting professor and lecturer at a variety of institutions, including the University of Chicago, University of Illinois at Chicago, the Hong Kong University of Science and Technology, and the Indian School of Business. He is a current visiting scholar at the Stellar Development Foundation.

His research interests lie in international finance, corporate finance and strategy. He has served on the editorial boards of a number of leading publications, including the Journal of Finance, Review of Financial Studies, American Economic Review, and Journal of Political Economy. He has also organised and taught executive education programmes on financial derivatives, corporate risk management and valuation in Los Angeles, Singapore, Hong Kong, Mumbai, and Hyderabad.

Microfinance, financial technology, and impact investing are his recent teaching, research, and applied interests. He has supervised several MBA student projects in microfinance and FinTech in recent years and has taught undergraduate seminars and an MBA elective on these subjects. He believes that one of his greatest joys comes from working with smart people who strive to make this world a better place, especially for people with limited resources and opportunities. He is constantly thinking about, doing research on, and getting involved in projects that will make a difference in the world.

That commitment may be best illustrated with his proposed ‘Financial Access at Birth (FAB)’ initiative, in which every child born in the world is given an initial deposit of $100 in an online bank account, ensuring that everyone in the world will have access to financial services within a few decades.

Professor Chowdhry is a frequent contributor to the Huffington Post and is the co-founder (with Professor Ivo Welch) and executive editor of a new publication, Finance & Accounting Memos (FAMe),which makes academic research more accessible for MBA and PhD students, journalists, policy makers, and other academics.

Bhagwan Chowdhry
Bhagwan Chowdhry