2005-04-24 papers

on Microfinance

Issue of 2005‒04‒24
two papers chosen by
Aastha Pudasainee and Iman van Lelyveld

Creating Incentives for Micro-Credit Agents to Lend to the Poor By Cecile Aubert; Alain de Janvry; Elisabeth Sadoulet
Household Access to Microcredit and Child Work in Rural Malawi By Gautam Hazarika; Sudipta Sarangi

Creating Incentives for Micro-Credit Agents to Lend to the Poor

By:	Cecile Aubert (Universite Paris Dauphine); Alain de Janvry (University of California, Berkeley); Elisabeth Sadoulet (University of California, Berkeley)
Abstract:	Microfinance institutions (MFIs) have introduced incentive pay schemes for their credit agents to induce information acquisition on borrowers. Bonuses linked to repayment are efficient for profit-oriented MFIs but insufficient for non-profit MFIs trying to reach very poor borrowers, when repayment and wealth are positively correlated. We show that no incentive scheme is consistent with this (non-verifiable) objective: Random audits on the share of very poor borrowers selected by the agent become necessary. Under the optimal contract, non-profit MFIs generally maximize the number of poor borrowers it services by cross-subsidization between very poor and less poor borrowers.
Keywords:	micro-credit, pro-poor objectives, incentives,
Date:	2004–06–01
URL:	http://d.repec.org/n?u=RePEc:cdl:agrebk:1077&r=mfd

Household Access to Microcredit and Child Work in Rural Malawi

By:	Gautam Hazarika (University of Texas at Brownsville and IZA Bonn); Sudipta Sarangi (Louisiana State University)
Abstract:	This paper examines the effect of household access to microcredit upon work by seven to eleven year old children in rural Malawi. Given that microcredit organizations foster household enterprises wherein much child labor is engaged, this paper aims to discover whether access to microcredit might increase work by children. It is found that household access to microcredit, measured in a novel manner as self-assessed credit limits at microcredit organizations, raises the probability of child work in households with sample mean values of land ownership and number of retail sales enterprises. It appears this is due to children having to take up more domestic chores as adults are busied in household enterprises following improved access to microcredit.
Keywords:	child labor, microcredit
JEL:	J22
Date:	2005–04
URL:	http://d.repec.org/n?u=RePEc:iza:izadps:dp1567&r=mfd

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