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on Microfinance |
| By: | Jonathan Zinman (Dartmouth College) |
| Abstract: | Expanding credit access is a key ingredient of development strategies worldwide. Microfinance practitioners, policymakers, and donors have ambitious goals for expanding access, and seek efficient methods for implementing and evaluating expansion. There is less consensus on the role of consumer credit in expansion initiatives. Some microfinance institutions are moving beyond entrepreneurial credit and offering consumer loans. But many practitioners and policymakers are skeptical about “unproductive” lending. These concerns are fueled by academic work highlighting behavioral biases that may induce consumers to over borrow. We estimate the impacts of a consumer credit supply expansion using a field experiment and follow-up data collection. A South African lender relaxed its risk assessment criteria by encouraging its loan officers to approve randomly selected marginal rejected applications. We estimate the resulting impacts using new survey data on applicant households and administrative data on loan repayment, as well as public credit reports one and two years later. We find that the marginal loans produced significant benefits for borrowers across a wide range economic and well-being outcomes. We also find some evidence that the marginal loans were profitable for the Lender. The results suggest that consumer credit expansions can be welfare-improving. |
| Keywords: | Microfinance, credit impact, consumer credit |
| JEL: | D1 D9 J2 J6 O1 |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:egc:wpaper:956&r=mfd |
| By: | Kati Schindler |
| Abstract: | This paper analyzes the use of informal credit as a strategy to cope with risk by market women in the city of Tamale, northern Ghana. Based on qualitative research techniques, the analysis reveals that the intra-household structure determines these market-based coping strategies. Market women invest a considerable amount of time in maintaining complex credit networks to insure against a loss of trading capital and labor. As a policy implication, this research suggests providing market women with access to formal, reliable and long-term microfinance, both to minimize their exposure to risks and to enhance their ability to cope with risks. |
| Keywords: | Africa, Ghana, informal finance, coping strategies, intra-household allocation, women |
| JEL: | O12 O17 D13 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp715&r=mfd |
| By: | Suresh de Mel (University of Peradeniya); David McKenzie (World Bank and IZA); Christopher Woodruff (University of California, San Diego) |
| Abstract: | Small and informal firms account for a large share of employment in developing countries. The rapid expansion of microfinance services is based on the belief that these firms have productive investment opportunities and can enjoy high returns to capital if given the opportunity. However, measuring the return to capital is complicated by unobserved factors such as entrepreneurial ability and demand shocks, which are likely to be correlated with capital stock. We use a randomized experiment to overcome this problem, and to measure the return to capital for the average microenterprise in our sample, regardless of whether or not they apply for credit. We accomplish this by providing cash and equipment grants to small firms in Sri Lanka, and measuring the increase in profits arising from this exogenous (positive) shock to capital stock. After controlling for possible spillover effects, we find the average real return to capital to be 5.7 percent per month, substantially higher than the market interest rate. We then examine the heterogeneity of treatment effects to explore whether missing credit markets or missing insurance markets are the most likely cause of the high returns. Returns are found to vary with entrepreneurial ability and with measures of other sources of cash within the household, but not to vary with risk aversion or uncertainty. |
| Keywords: | microenterprises, returns to capital, self-employment |
| JEL: | O12 O17 |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2934&r=mfd |
| By: | Gonzalez, Adrian |
| Abstract: | After controlling for MFI and country characteristics, we find no evidence suggesting a strong (in magnitude) and statistically significant relationship between changes in GNI per capita (GROWTH) and four indicators of MFI portfolio risk: quality at Risk over 30 Days (PAR-30), Portfolio at Risk over 90 Days (PAR-90), Loan loss Rate (LLR), and Write-off Ratio (WOR). We test the robustness of the models with different specifications that confirm the general result and test for different impact from growth rates according to average loan sizes disbursed by MFIs. These tests suggest that microfinance portfolios have high resilience to economic shocks. Specifically, we found only a significant relationship between growth and PAR-30. We also control for other explanatory variables like size, age, average loan size, and productivity. |
| Keywords: | Microfinace; Assets Quality; Systemic Shocks; Repayment; Resilience |
| JEL: | E5 G15 O1 |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:4317&r=mfd |
| By: | Marek Hudon (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels and Harvard University, Boston.) |
| Abstract: | This paper focuses on the use of donor funds to finance MFIs. The role of donors in microfinance is rapidly evolving, particularly since the emergence of socially responsible and commercial investors. We argue that public policy should be designed to facilitate the entry of new private actors without abandoning the markets that could not work without some public support. Through a separation of socially-responsible investors from fully commercial ones, we come up to an original classification of the different funding sources and the actors and their potential market in the sector. |
| Keywords: | microfinance, public policy, subsidies, donors |
| JEL: | L31 M54 O16 Q14 |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:07-020&r=mfd |
| By: | Llanto, Gilberto M.; Almario, Joselito; Llanto-Gamboa, Marinella Gilda |
| Abstract: | This study assesses the state of microinsurance in the country, identifies the players and their performance, and the challenges facing microinsurance development. The term “micro” pertains to the capacity of a program to handle the small, sometime irregular cash flows of poor households, who have been excluded in the commercial insurance system for a variety of reasons. Microinsurance products, specifically designed with the poor in mind, will help mitigate risks and reduce the vulnerability of poor households. The most prominent forms of microinsurance are life insurance and health insurance (carried out as part of an overall health care package that links the health insurance to a health facility), which have been designed to be responsive to the need of poor households. The paper reports 17 players in the emerging microinsurance industry, consisting of 12 cooperatives, three NGOs/MFIs, and two transport associations that are offering “home-made” microinsurance. These “home-made” microinsurance products continue to be provided despite their actuarial weaknesses and lack of financial capacity of the providers because of very strong demand from their membership for such financial products. Given their advantages over commercial insurance companies, the mutual benefit associations (MBAs) are the usual vehicles of microinsurance programs. In 2004, 18 MBAs were registered with the Insurance Commission (IC) with accumulated assets of PhP14.8 billion. Members’ equity totaled PhP4.25 billion. The paper calls attention to the institutional, policy and regulatory issues and challenges facing microinsurance. |
| Keywords: | microfinance institutions, insurance industry, microinsurance, risk protection services, life insurance, mutual benefit associations, social protection, microinsurance delivery |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:phd:dpaper:dp_2006-25&r=mfd |
| By: | Tatom, Jojn; Godsted, David |
| Abstract: | Adult financial illiteracy is a major problem in the US and elsewhere. Financial fraud and poor performance in managing personal finances go hand in hand. The nation’s bankruptcy and home mortgage foreclosure rates rate have continued to climb despite improving employment opportunities, rapid growth in the nation’s income and bankruptcy reform aimed at making bankruptcy filing less necessary and more difficult. America’s personal savings rate hovers in negative territory. As new financial services and technologies proliferate, many low income persons are being left in the dust, often unable to participate in cost saving or high-return opportunities, or they are offered new services only on very unfavorable terms. At the same time, lack of financial and technological safeguards has made it easier to exploit all individuals through identity theft, mortgage fraud, or legal, but financially dubious, new products. In some cases, new technology is being forced on low-income individuals by a coordinated federal push for electronic payment of benefits. While an imposition on the otherwise unbanked, increasing access to financial institutions may provide a useful introduction to a higher level of financial information and literacy, as well as enhancing their confidence and ability in financial management. |
| Keywords: | Unbanked; financial literacy; financial institutions; bank deposits |
| JEL: | G28 H31 |
| Date: | 2006–11–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:4266&r=mfd |