Association for Public Policy Analysis & Management

Using the unique setting of microfinance where non-profits and for-profits directly compete in the same industry using similar approaches, this paper examines the differences in objectives between and within non-profit and for-profit firms.  First, the paper employs a model to develop the hypotheses and motivate the empirical work.  Then, using panel MIX Market data, I explore the effect of profit-status on the average loan size offered to capture the targeting strategy of the microfinance institution.   In addition, the introduction of interest cap regulation allows further examination of the differences between the objective functions of non-profit and for-profit firms.  I find that both for-profit and some non-profit firms increase loan size after regulation, but the subset of non-profit firms which overlap more with for-profit firms in terms of borrowers targeted actually decreases loan size, perhaps from a consolidation of competition with for-profit firms.  This more nuanced view of the objectives of microfinance institutions provides additional information to policy makers to better predict the effect of new regulations.