Banking Competition, Good or Bad? The Case of Promoting Micro and Small Enterprise Finance in Kazakhstan

Abstract

Competition is claimed to be beneficial in development projects promoting micro and small enterprise finance although there are still some doubts whether these loans can be developed into a profitable business. Actually nothing is known about how many MSE banking units optimally should be created and supported in a certain region. Our research aims at shedding new light on this important issue in development finance. We employ a unique dataset from the Small Business Department of the European Bank for Reconstruction and Development for Kazakhstan, and investigate which strategy contributes more to the overall program's success: a strategy of building up several competing banking units targeted at MSE lending or a strategy of establishing regional monopolies.