Competitive Environment and Financial Stability in the Peruvian Microfinance System

This paper examines the relationship between competition and financial stability for Peruvian microfinance institutions, during the 2002-2016 period. Using the Panzar and Rosse H-statistic as well as the Boone indicator for the evaluation of competition, and the Roy Z-score as a proxy for financial stability, we find a non-linear relationship (inverted U-shaped) between competition and financial stability, which validates the Martínez-Miera and Repullo approach. Furthermore, we find that competition in the Peruvian microfinance system might increase even when market concentration increases; and, according to the H-statistic, the market structure that best fits this system is monopolistic competition.