New Economics Papers
on Microfinance
Issue of 2006‒09‒23
five papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Group versus individual liability : a field experiment in the Philippines By Gine, Xavier; Karlan, Dean S.
  2. Subsidies and financial performances of the microfinance institutions: Does management matter? By Hudon, Marek
  3. Credit for what? Informal credit as a coping strategy of market women in northern Ghana By Schindler, Kati
  4. Comparaison des taux de repaiement d’une institution de microfinance offrant des prêts en groupe et individuels. By Marek Hudon; Tchakodo Ouro-Koura
  5. Financial Development and Inequality: Brazil 1985-99 By Meyer Bittencourt, Manoel F. Meyer

  1. By: Gine, Xavier; Karlan, Dean S.
    Abstract: Group liability is often portrayed as the key innovation that led to the explosion of the microcredit movement, which started with the Grameen Bank in the 1970s and continues on today with hundreds of institutions around the world. Group lending claims to improve repayment rates and lower transaction costs when lending to the poor by providing incentives for peers to screen, monitor, and enforce each other’s loans. However, some argue that group liability creates excessive pressure and discourages good clients from borrowing, jeopardizing both growth and sustainability. Therefore, it remains unclear whether group liability improves the lender’s overall profitability and the poor’s access to financial markets. The authors worked with a bank in the Philippines to conduct a field experiment to examine these issues. They randomly assigned half of the 169 pre-existing group liability ' centers ' of approximately twenty women to individual-liability centers (treatment) and kept the other half as-is with group liability (control). We find that the conversion to individual liability does not affect the repayment rate, and leads to higher growth in center size by attracting new clients.
    Keywords: Banks & Banking Reform,Knowledge Economy,Banking Law,Education for the Knowledge Economy,Contract Law
    Date: 2006–09–01
  2. By: Hudon, Marek
    Abstract: This paper uses a unique database from a leading microfinance rating agency to assess the impact of management on the functioning of microfinance institutions (MFIs). It focuses on MFIs’ financial performance, and on the level of subsidies received. The results show that the management skills are the main attribute, among six others, influencing the return on assets The technical, organisational and communication competences of the top managers seem to play a key role. For-profit, cooperatives and non-profit institutions reach relatively similar performances. Finally, results show that the well-managed MFIs have not received significantly more subsidies than other less competent institutions. It is however the size of the institutions, proxied by the number of borrowers that matters.
    Keywords: microfinance, subsidies, management, governance, non-profit
    JEL: L31 M54 O16 Q14
    Date: 2006
  3. By: Schindler, Kati
    Abstract: This paper analyzes the use of informal credit as a coping strategy against risk by market women in the city of Tamale, Ghana. Using qualitative research techniques, the analysis reveals that intra-household structure and allocation decisions determine these market-based coping strategies. Market women invest a considerable amount of working hours in maintaining complex credit networks as a safeguard against extreme risks. As a policy implication, this research suggests to provide market women with access to formal, reliable and long-term microfinance institutions, both to improve their ability to cope with risks and to reduce the risks they face.
    Keywords: micro-credit, informal markets, networks, coping strategies, intra-household allocation, women, Ghana
    JEL: D13 O12 O17
    Date: 2006
  4. By: Marek Hudon (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels and Harvard University, Boston.); Tchakodo Ouro-Koura (Centre Warocqué, Université Mons-Hainaut and Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels)
    Abstract: Cette contribution porte sur l’analyse des taux de remboursements des clients d’une institution de microfinance (IMF) en utilisant une base de donnée unique provenant du Togo. L’analyse fournit une comparaison des technologies de prêt individuel et en groupe offerte par l’IMF selon les caractéristiques d’emprunteurs. Nous montrons que la méthodologie de prêt reste un élément explicatif des remboursements à temps, alors que cette constatation n’est plus valable en tenant compte des remboursements en retard. Le lieu de résidence des clients par rapport à l’institution, ainsi que l’objet du prêt apparaissent aussi comme des éléments explicatifs importants du taux de repaiement de l’IMF.
    Keywords: repaiement, microfinance, prêt, groupe
    JEL: L31 M54 O16 Q14
    Date: 2006–09
  5. By: Meyer Bittencourt, Manoel F. Meyer
    Abstract: We examine the impact that financial development had on earnings inequality in Brazil in the 1980’s and 90’s. The empirical evidence, based on panel time series and time series data, shows that more broad access to financial and credit markets had a significant and robust effect in reducing inequality during the period investigated. We suggest that this is not only because the poor can invest the acquired credit in all sorts of productive activities, but also because those with access to financial markets can insulate themselves against recurrent poor macroeconomic performance, which is exemplified by extreme inflation rates. The main implication of the results is that a seemingly non-distortionary policy, such as more credit aimed at the poor, alleviates the high inequality present in Brazil and consequently improves welfare without distorting economic efficiency.
    Keywords: Financial development and markets, credit, inequality and welfare, inflation
    JEL: D31 E44 O11 O54
    Date: 2006

This issue is ©2006 by Aastha Pudasainee and Olivier Dagnelie. 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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