New Economics Papers
on Microfinance
Issue of 2008‒01‒05
three papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Effect of Microfinance on Vulnerability, Poverty and Risk in Low Income Households By Bali Swain, Ranjula; Floro, Maria
  2. "Joint Liability Borrowing and Suicide" By Joe Chen; Yun Jeong Choi; Yasuyuki Sawada
  3. SME financing in China By Chen Xiang Liu

  1. By: Bali Swain, Ranjula (Department of Economics); Floro, Maria (Department of Economics)
    Abstract: Uncertainty and unpredictability faced by low-income households increase their vulnerability making poverty even more unbearable. India¡¦s National Bank for Agriculture and Rural Development (NABARD)-initiated Self-Help Group (SHG) program, which is currently the largest and fastest growing microfinance program in the developing world, has been aggressively promoted as a way of combating poverty. This paper investigates whether or not SHG participation results in reducing poverty and vulnerability. A theoretical framework is developed to examine the mechanisms through which the pecuniary and non-pecuniary effects of the SHG program on the beneficiaries¡¦ earnings and empowerment, influence their households¡¦ ability to manage risk. Going beyond the traditional poverty estimates, we use a vulnerability measure which quantifies the welfare loss associated with poverty as well as different types of risks like aggregate and idiosyncratic risks. Applying this measure to an Indian panel survey data for 2000 and 200ƒ£, we find that SHG members have lower vulnerability as compared to a group of non-SHG (control) members. Furthermore, we find that the poverty contributes to about 80 percent of the vulnerability faced by the household followed by aggregate risk.
    Keywords: Microfinance; Vulnerability; Poverty; Risk Coping
    JEL: D14 G21 I32
    Date: 2007–12–21
  2. By: Joe Chen (Faculty of Economics, University of Tokyo); Yun Jeong Choi (Faculty of Economics, University of Tokyo); Yasuyuki Sawada (Department of Economics, Northwestern University)
    Abstract: This paper shows that joint liability borrowing may put too much pressure on the borrower, mainly through the stigma in case of repayment failure, and leads to a vexing outcome|the suicide of the borrower. We provide a model of joint liability borrowing which facilitates credit market transaction ex ante but may induce suicides ex post in the bad state. We introduce some supportive evidence from a suicide survey in Japan.
    Date: 2007–12
  3. By: Chen Xiang Liu
    Abstract: SMEs have a great contribution in China’s economic expansion. However, the financing predicament currently faced by SMEs constitutes a great bottleneck for their development. Banks are reluctant to lend to them, mainly due to the lack of collateral and their poor capability in pricing risk. This is the reason why credit guarantee institutions play a key role in SME financing and the perfection of the credit guarantee system is important for promoting their access to credit. In addition, the lifting of the ceiling on lending rates as well as other steps taken by banking authorities will encourage bank lending to SMEs. Finally, informal finance has a significant part in SME financing.
    Keywords: SME financing, credit guarantee, informal finance
    JEL: E26 E51 G21 O53
    Date: 2007

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