New Economics Papers
on Microfinance
Issue of 2008‒09‒29
two papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Vulnerability, Trust and Microcredit: The Case of China?s Rural Poor By Turvey, Calum G.; Kong, Rong
  2. Banques Commerciales, Institutions de Micro-Finance et financement de l’économie guinéenne : proposition de schémas de rapprochement By Mohamed Lamine Doumbouya

  1. By: Turvey, Calum G.; Kong, Rong
    Abstract: This paper investigates the economic conditions of rural households in China. Historical survey data indicate that over 80 per cent of rural households earn less than 4,500 yuan in net disposable income each year, that for the vast majority of rural households disposable income is insufficient to meet food consumption needs, and that in terms of economic growth rural households are receiving an ever decreasing percentage of China?s growing economy with rural household incomes being only 31 per cent of urban household income in 2004. To reduce vulnerability and food insecurity, this paper investigates the role of microcredit in China. It is argued that in China the conventional wisdom is to provide credit using traditional means, but we provide a model that shows how a microcredit market based on trust can co-exist with a commercial collateral-based market. This model is developed in detail and certain propositions are supported using dominant strategies in a trust-honour game based on the prisoner?s dilemma. The theoretical model is then applied to the case of microlending in China. It explains why, in the absence of trust, rural credit corporations do not make loans to the very poor. Furthermore, the model explains how Central party policies on rural credit can actually crowd out micro finance institution (MFI) and NGO microlending in China, and also explains why moneylenders dominate in many of the poorer regions of the country. From a policy point of view, the theoretical model indicates that trust-based lending, coupled with certain incentives, can go far in supporting growth opportunities in rural China. It is argued that Chinese policy should be flexible enough to permit trust-based microlending to the poor, regardless of how counterintuitive this must appear to the conventional wisdom. Indeed, in the absence of flexible credit strategies, China?s rural poor will remain in a persistent food-insecure poverty gap.
    Keywords: equilibrium, game theory, rural, credit, China
    Date: 2008
  2. By: Mohamed Lamine Doumbouya (LEFI - Laboratoire d'Economie de la Firme et des Institutions - Université Lumière - Lyon II)
    Abstract: Le présent papier propose des solutions permettant de supprimer les cloisons qui séparent les secteurs financiers formels et semi-formels en Guinée, et d’améliorer le financement des micro et petites entreprises. En dépit des nombreuses réformes financières menées par les autorités publiques, la structure du système financier national ne permet pas une allocation optimale des ressources à l’économie. Les manques à gagner sont importants aussi bien pour les institutions financières que pourles acteurs économiques. La recherche d’une complémentarité entre banques commerciales et Institutions de Micro-finance (IMF) vise à renforcer les capacités de financement de ces dernières pour doter les micros et petites entreprises des ressources financières nécessaires à leur croissance.
    Keywords: Banque;Institutions de Microfinance;Micro et Petites Entreprises;approfondissement financier
    Date: 2008–09

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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