New Economics Papers
on Microfinance
Issue of 2005‒12‒14
three papers chosen by
Aastha Pudasainee and Ana Ogarrio

  1. Scaling-up Microfinance for India's Rural Poor By Priya Basu; Pradeep Srivastava
  2. Comparative Review of Microfinance Regulatory Framework Issues in Benin, Ghana, and Tanzania By Joselito Gallardo; Korotoumou Ouattara; Bikki Randhawa; William F. Steel
  3. Deposit Collectors By Nava Ashraf; Dean Karlan; Wesley Yin

  1. By: Priya Basu (The World Bank); Pradeep Srivastava (National Council of Applied Economic Research, India)
    Abstract: This paper reviews the current level and pattern of access to finance for India's rural poor and examines some of the key microfinance approaches in India, taking a close look at the most dominant among these, the Self Help Group (SHG) Bank Linkage initiative. It empirically analyzes the success with which SHG Bank Linkage has been able to reach the poor, examines the reasons behind this, and the lessons learned. The analysis draws heavily on a recent rural access to finance survey of 6,000 households in India undertaken by the authors. The main findings and implications of the paper are as follows: India's rural poor currently have very little access to finance from formal sources. Microfinance approaches have tried to fill the gap. Among these, the growth of SHG Bank Linkage has been particularly remarkable, but outreach remains modest in terms of the proportion of poor households served. The paper recommends that, if SHG Bank Linkage is to be scaled-up to offer mass access to finance for the rural poor, then more attention will need to be paid toward the promotion of high quality SHGs that are sustainable, clear targeting of clients, and ensuring that banks linked to SHGs price loans at cost-covering levels. At the same time, the paper argues that, in an economy as vast and varied as India's, there is scope for diverse microfinance approaches to coexist. Private sector microfinanciers need to acquire greater professionalism, and the government can help by creating a flexible architecture for microfinance innovations, including through a more enabling policy, legal, and regulatory framework. Finally, the paper argues that, while microfinance can, at minimum, serve as a quick way to deliver finance to the poor, the medium-term strategy to scale-up access to finance for the poor should be to "graduate" microfinance clients to formal financial institutions. The paper offers some suggestions on what it would take to reform these institutions with an eye to improving access for the poor.
    Keywords: Domestic finance, Poverty, Rural development
    Date: 2005–06–01
  2. By: Joselito Gallardo (The World Bank); Korotoumou Ouattara (The World Bank); Bikki Randhawa (The World Bank); William F. Steel (The World Bank)
    Abstract: The authors investigate the microfinance regulatory regimes in Benin, Ghana, and Tanzania, with a view to identifying key issues and lessons on how the overall regulatory framework affects integration of microfinance institutions into the financial system. The authors find that recognizing different tiers of both regulated and unregulated institutions in a financial structure facilitates financial deepening and outreach to otherwise underserved groups in urban and rural areas. That environment promotes sustainable microfinance under shared performance standards and encourages regulatory authorities to develop appropriate prudential regulations and staff capacity. Case studies of the three countries raise important issues on promoting microfinance development vis-à-vis regulating them. Laws to regulate activities other than intermediation of public deposits into loans can result in disproportionately restrictive and unmanageable standards, even as dynamic microfinance sectors have emerged without conducive regulatory regimes. The authors use the three countries' regulatory experiences to highlight the importance of differentiating when prudential supervision is warranted and when regulatory oversight suffices, and to identify the agencies to carry out regulation. They address an important issue that has received scant attention, measuring and paying for the costs of regulating microfinance, and the need to build technical capacity of supervisory and regulatory staff.
    Keywords: Domestic finance, Private sector development
    Date: 2005–04–01
  3. By: Nava Ashraf (Harvard University); Dean Karlan (Economic Growth Center, Yale University); Wesley Yin (University of Chicago)
    Abstract: Informal lending and savings institutions exist around the world, and often include regular door-to-door deposit collection of cash. Some banks have adopted similar services in order to expand access to banking services in areas that lack physical branches. Using a randomized control trial, we investigate determinants of participation in a deposit collection service and evaluate the impact of offering the service for micro-savers of a rural bank in the Philippines. Of 137 individuals offered the service in the treatment group, 38 agreed to sign-up, and 20 regularly used the service. Take-up is predicted by distance to the bank (a measure of transaction costs of depositing without the service) as well as being married (a suggestion that household bargaining issues are important). Those offered the service saved 188 pesos more (which equates to about a 25% increase in savings stock) and were slightly less likely to borrow from the bank.
    Keywords: Savings Behavior, Microfinance, Field Experiment, Savings Mobilization, Deposit Collector
    JEL: D1 D9 G1 G2 O1
    Date: 2005–12

This issue is ©2005 by Aastha Pudasainee and Ana Ogarrio. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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