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on Microfinance |
| By: | Annabel Vanroose (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels and Section for Economic, Monetary and Financial Policy, Vrije Universiteit Brussel.) |
| Abstract: | Microfinance is increasingly seen as a major development tool. Its promise to help the poor by providing financial services is seen as the major reason for its support. Nevertheless, its effectiveness on actual poverty reduction is not yet clear and therefore it generates some unresolved ethical questions. These become even more prominent in the process of commercialization. The impact on poverty is usually measured in financial terms. In this paper, poverty is defined in a broader sense to include deficiency in financial as well as human and social capital. The article shows that, in this broad sense, microfinance may have negative as well as positive effects on poverty. |
| Keywords: | Ethics, microfinance, commercialization, poverty. |
| JEL: | A13 I32 D63 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:07-014&r=mfd |
| By: | Roy Chowdhury, Prabal |
| Abstract: | We consider group-lending with joint liability where the provision of loans is conditional on prior savings. In a dynamic model with moral hazard and endogenous group-formation, we examine the effect of such schemes on the allocation of loans between strongly and weakly empowered borrowers. We find that he savings requirement may help to screen out weak borrowers. Further, as long as the borrowers are not too similar, it increases the incentive for ``positive assortative matching (PAM).'' For intermediate interest rates, group-lending leads to ``PAM'' with a screening out of weak borrowers. It is thus feasible, whereas individual lending, which does not allow for such screening, is not. Interestingly, for relatively high interest rates, individual lending may dominate group-lending. |
| Keywords: | Assortative matching; empowered borrowers; joint liability lending; savings. |
| JEL: | O12 O20 O15 O17 G21 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:3405&r=mfd |