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on Microfinance |
| By: | Maria Floro; John Messier |
| Abstract: | In recent decades, there has been a marked increase in the informalization of employment in developing countries. The risk and insecurity associated with a growing number of informal sector jobs have important consequences in inducing or maintaining vulnerability. This paper explores the incidence of high indebtedness or financial stress among urban, low-income households in Ecuador and demonstrates its interconnectedness with the quality of employment. The implications are non-trivial in the sense that high debt service burden, as with the lack of credit access, can undermine investment and maintain low productivity and earnings. It can also lead to higher probability of loan default and to increase in interest rates or termination of credit line. There are also longer term welfare consequences in terms of households’ ability to cope with future shocks such as illness. The analysis is based on a 2002 sample of men and women in urban, poor households in Ecuador. By means of tobit and regression analyses, the paper demonstrates that labor market informalization has led to higher incidence of indebtedness. Moreover, there are differentiated patterns of debt servicing among women and men in urban, poor households. The results provide a more nuanced yet illuminating picture of the interconnectedness of employment, financial stress and vulnerability. We argue that informalization of employment has consequences in other dimensions of vulnerability of households such as high debt servicing, and therefore requires rethinking of current economic and social policies in order to effectively reduce poverty. |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:amu:wpaper:0808&r=mfd |
| By: | Ranjula Bali Swain; Maria Floro |
| 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 2003, 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: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:amu:wpaper:0208&r=mfd |
| By: | Ngo, Thi Minh-Phuong; Wahhaj, Zaki |
| Abstract: | In the past 30 years, microfinance has carried many promises of social and economic transformation, with the shift towards targeting women being seen as a major strategic move through which the promise of social development could be most effectively delivered. However, ethnographic studies have shown that many women relinquish the use of their loans to male members of the household, belying the empowering promise of microfinance. We propose a simple model of household bargaining which examines how providing women with credit affects production and decision-making power in the household. Following Bergstrom (1996), we account for the roles of both divorce and non-cooperation in the household as relevant fall-back options in the bargaining strategy of each spouse. We show that the introduction of a microcredit programme is likely to have widely heterogeneous impacts, and can adversely affect the bargaining power of some women. We demonstrate that access to credit allows a woman to strengthen her bargaining position through an expansion of her autonomous activities (the causal mechanism hoped for) only under very specific circumstances: when she is able to invest her new capital profitably in an autonomous activity, and her husband has no alternative activity in which the same capital would generate comparable returns. The case in which the availability of credit is most likely to strengthen women's bargaining position in the household is when capital can be invested in a cooperative activity in which both spouses contribute in an important way. |
| Keywords: | microfinance household decision-making bargaining microcredit intrahousehold allocation gender empowerment Bangladesh |
| JEL: | D13 C78 J16 |
| Date: | 2008–10–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:11293&r=mfd |