New Economics Papers
on Microfinance
Issue of 2008‒03‒01
five papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Empowering women via microfinance in fragile states. By Beatriz Armendariz; Nigel Roome
  2. The Impact of Access to Credit on the Adoption of Tobacco in Malawi By Simtowe, Franklin
  3. Corporate Governance in Microfinance : Credit Unions By Marc Labie; Anaïs Périleux
  4. Combined Micro-Finance: Selected Research Questions from a Stakeholder Point of View By Koen Rossel-Cambier
  5. From Revolution to Evolution: Charting the Main Features of Microfinance 2.0 By Ronald Mendoza; Brandon Vick

  1. By: Beatriz Armendariz (CERMi, Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels and Harvard University.); Nigel Roome (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels and TiasNimbas Business School, Tilburg Campus, The Netherlands.)
    Abstract: Ever since microfinance was popularized in the mid-1970s in Bangladesh one of its salient features has been the overwhelming representation of women, mostly in fragile states. Institutional structures and social norms in such states are very rigid. Nevertheless, the trend has increased steadily, particularly during the 1980s. According to 2006 Microcredit Summit Campaign Report, seven out of ten microfinance clients are women. Millions of these women are married or live with a partner, and many have children. Relative to initial lending practices by the Grameen Bank in Bangladesh, the bias in favor of loans to women in microfinance has been accompanied by an increasing trend to exclude men from microfinance services, particularly in the context of loans to those with very low income levels. The practice of exclusion might however prove to be counterproductive for it can generate frictions within households, as men feel increasingly threatened in their role as primary breadwinners within the household. In this essay we argue that the promotion of women in microfinance initiatives and the bias against men is taking place in the absence of solid empirical evidence on the effects of this approach on the balance of power in households and on the health, education and well-being of all household members. We hold to these to be key aspects of development. We further argue that this issue deserves research attention given the possibility of unforeseen outcomes and adverse consequences that run counter to the goal to encourage microfinance initiatives as a means to promote development. To clarify the central issues, on the one hand, higher household income in the hands of women might increase health and education for women and their household members –we call this the women-empowerment effect. On the other hand, the exclusion of men from access to subsidized finance might create frictions, and rebound effects that diminish the supportive role women play for their spouses and wider household members in the production of health and education – we call this the women-disempowering effect. In the event that the latter effect dominates over the former, then subsidized microfinance for women might have no overall positive impact, or even worse, a negative impact on health and education at the household level and the women in households. An even more challenging issue is to better understand what influence social and institutional conditions exercise on the empowerment and disempowerment effects experienced by women in microfinance initiatives and the subsequent outcomes in terms of development. This issue matters because microfinance initiatives are specifically directed at household level, and, yet prevailing social and institutional norms are determined at community or societal level. In the circumstances where social and institutional conditions dominate the effects of microfinance initiatives it would imply that microfinance projects might lead to better outcomes when they are accompanied by measures for institutional capacity building that promote the rights and role of women in society. This essay is structured as follows. First, it provides an overview of what we currently know about microfinance, gender, health and education in the context of Bangladesh, where most research has been conducted. Second, some anecdotal evidence from Bangladesh and Africa on the notion of microfinance empowerment is presented and discussed. This raises questions about the influence of institutional structures and norms on the enhanced capacity of women to assert their role as the main providers of health and education, mainly arising from the fact that the empowerment of women generates frictions with their partners, which in turn leads to a potential disempowerment effects. It also suggests that institutional structures and norms serve to constrain the outcomes of microfinance initiatives. Third, anecdotal evidence from Chiapas, in southern Mexico, is outlined which provided the basis for empirical research on new approaches to microfinance now being undertaken in the region. Fourth, the essay outlines this experimental intervention in southern Mexico, where the women borrowers in a microfinance initiative can invite their spouses to be part of women-only solidarity groups as borrowers, in order to see whether potential frictions could be eliminated as a way better to enhance women empowerment and provide for improved access to health and education at the household level. The main challenges of implementing this type of intervention as revealed through the experience to date in the South Mexican experiment are described. Finally, a fifth section spells out some concluding remarks.
    Date: 2008–01
  2. By: Simtowe, Franklin
    Abstract: This paper investigates the impact of access to credit on the adoption of burley tobacco among households that differ in their credit constraint status using a Double hurdle model. The data used in the study is from Malawi collected by the International Food Policy Research Institute (IFPRI) in collaboration with the Rural Development Department of Bunda College of Agriculture. Results reveal that while access to credit increases adoption among credit constrained households, it has a limited effect among unconstrained households. Results further show that access to credit does not lead to an immediate increase in the likelihood of adoption for tobacco, but conditional on adoption it enables credit constrained households to allocate more land to tobacco production. Consistent with theory, results for the test for separation of consumption and production decisions indicate that household demographic factors affect demand for labor among credit constrained households while they have no effect among unconstrained households.
    Keywords: credit constraints; double-hurdle; tobacco; adoption; Malawi
    JEL: D0 O3
    Date: 2008–01–30
  3. By: Marc Labie (Center for European Research in Microfinance, Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels.); Anaïs Périleux (Center for European Research in Microfinance, Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels.)
    Abstract: As part of the tremendous development experienced by microfinance over the last few years, one type of institution has not generated all the attention that it could : credit unions. This can be explained by the frequent corporate governance weaknesses of this type of institution, which have been identified as a major limit and constraint to their development. This paper tries to deal with this issue by tackling the reasons why corporate governance of credit unions is so difficult to deal with, and by presenting various mechanisms and research areas which could play a role in solving this problem.
    Keywords: microfinance, savings and credit cooperatives, credit unions, corporate governance, growth, development.
    JEL: G21 G3 L2 L3 O16 O17
    Date: 2008–02
  4. By: Koen Rossel-Cambier (Center for European Research in Microfinance, Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels.)
    Abstract: There is a growing interest in combined micro-finance schemes delivering both micro-insurance and micro-credit products to provide a more comprehensive response to existing market failures often leading to a lack of access to financial services for excluded populations. Despite its increasingly widespread practice, the issue of combined micro-finance has received relatively little attention and various specific research questions remain underexplored such as: Does combining credit and insurance services improve or weaken overall organisational performance of micro-finance schemes?; Does the combining of micro-finance services lead to more inclusion or to more exclusion of the poor? and; Are combined micro-finance schemes enhancing or challenging donor effectiveness? This paper builds on a literature review and is a first conceptual attempt to bring forward the specific characteristics of combined micro-finance schemes. It argues for a more formative evaluation approach towards combining micro-finance schemes. Market dynamics and interventions of the key players and stakeholders of combined micro-finance should aim at becoming most efficient, allowing maximum socio-economic benefits and efficiency, taking into account the different challenges of reaching the poor.
    Date: 2008–02
  5. By: Ronald Mendoza (United Nations Development Programme, Office of Development Studies); Brandon Vick (Fordham University, Department of Economics)
    Abstract: The past thirty years or so has seen microfinance take off from small group-based lending experiments to several thousand financial service providers (FSPs) serving a growing portion of the developing world today. Nevertheless, the challenge to improve broadbased access to financial services—going beyond credit and into other products such as savings, insurance and money transfer services—remains. Where is the microfinance industry headed? This essay reviews the available evidence, and argues that both the public and private spheres are crucial to the continued dynamism and expansion of the microfinance industry—the private sector as a continued source of product and process innovations; and the public sector taking on a strong market enabling and development role.
    Keywords: Microfinance, market failures, information, innovation
    JEL: D52 O31 Q13
    Date: 2008

This issue is ©2008 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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