2005-05-29 papers

on Microfinance

Issue of 2005‒05‒29
two papers chosen by
Aastha Pudasainee

Conditions in Which Microfinance has Emerged in Certain Regions and Consequent Policy Implications By Sriram M S; Kumar Radha
Using Experimental Economics to Measure Social Capital And Predict Financial Decisions By Dean S. Karlan

Conditions in Which Microfinance has Emerged in Certain Regions and Consequent Policy Implications

By:	Sriram M S; Kumar Radha
Abstract:	The paper looks at some macro data on the availability of infrastructure, economic growth, density of population and the availability of formal financial services to examine if any of these factors explain the growth of microfinance in certain regions, while the other regions lag behind. For the study, data from the four southern states and three states from the western part of the country have been examined. We find that most of the indicators are not significant enough to explain the regional disparity in the growth of microfinance. However, anecdotal evidence and a perusal of the state policy pronouncements explain that the role of the state could be significant in promoting some of these initiatives. In case of Karnataka, we also find that the banking system seems to have played an additional role in rolling out microfinancial services. The paper concludes by indicating that possibly the sector is still insignificant in the rural economy to establish causality with macro variables. However, there could be possibility of growth in states like Rajasthan where most of the parameters that could foster microfinance seem to exist and with policy intervention on the routing of developmental projects, the movement could get a big boost. We also indicate that the existing network has the potential of unleashing more finance and financial products, and that initiative should be seized forthwith.
Date:	2005–05–24
URL:	http://d.repec.org/n?u=RePEc:iim:iimawp:2005-05-03&r=mfd

Using Experimental Economics to Measure Social Capital And Predict Financial Decisions

By:	Dean S. Karlan (Economic Growth Center, Yale University and Princeton University)
Abstract:	Questions remain as to whether results from experimental economics games are generalizable to real decisions in non-laboratory settings. Furthermore, important questions persist about whether social capital can help solve seemingly missing credit markets. I conduct two experiments, a Trust game and a Public Goods game, and a survey to measure social capital. I then examine whether behavior in the games predicts repayment of loans to a Peruvian group lending microfinance program. Since the structure of these loans relies heavily on social capital to enforce repayment, this is a relevant and important test of the games, as well as of other measures of social capital. I find that individuals identified as "trustworthy" by the Trust game are in fact less likely to default on their loans. I do not find similar support for the Trust game as a measure of trust.
Keywords:	trust game, experimental economics, microfinance
JEL:	B4 C9 D8 O1
Date:	2005–04
URL:	http://d.repec.org/n?u=RePEc:egc:wpaper:909&r=mfd

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