In many developing countries agricultural sectors, where loans are disbursed, many groups (perhaps hundreds of people in a small district) will enter the same markets at the same time of year, typically just after a harvest of perhaps rice or peanut, at the time the loan is distributed. This makes the conditions of potentially unstable markets developing.
The problem of many people entering the same markets as a result of micro finance projects is not only limited to the agricultural sector. This also occurs in urban areas, where for example the Grameen Bank in Bangladesh has given loans to large numbers of women in order to purchase mobile phones, after which they sell calling time to customers. All over Africa and Asia now there can be found many thousands of people all offering mobile phone services, ranging from battery recharging to the selling of units, to the rent of the phone itself.
In these, new cases of entrepreneurship, more sellers continue to enter the same markets, encouraged by their participation in loan projects, who come to compete in an expanding sectors, yet which has a very small profit margin, and a lot of competitors.
In the case of traditional agricultural products, a buyers’ market, where large numbers of people enter the market at the same time, can develop. Here, the customers’ themselves can begin to take advantage of the high number of sellers, and start to demand credit instead of paying cash, which can force prices down further. In turn, this can split loan groups due to members enjoying different levels of success, and individuals selling their produce on credit. Hence, although loans can certainly give new found opportunities for economic development to rural as well as semi urban communities, and has opened up new markets, the developmental reality can be that many households compete with each other over the same product, and their profits become very pressed. This can result as sellers compete and sometimes may have to undercut each other.