New Economics Papers
on Microfinance
Issue of 2009‒05‒16
six papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. How Important are Peer Effects in Group Lending? Estimating a Static Game of Incomplete Information By Li, Shanjun; Liu, Yanyan; Deininger, Klaus
  2. Discrimination in Microfinance: The Role of Credit Officers By Marc Labie; Pierre-Guillaume Méon; Ariane Szafarz
  3. Poverty and income seasonality in Bangladesh By Khandker, Shahidur R.
  4. Vulnerability and Poverty in Bangladesh By Md. Shafiul Azam; Katsushi S. Imai
  5. Finanzas y genero en Colombia: el caso del Banco Mundial de la Mujer en Cali By Netty Huertas
  6. Impact of Conditional Cash Transfers and Remittances on Credit Market Outcomes in Rural Nicaragua By Hernandez, Emilio; Sam, Abdoul; Gonzalez-Vega, Claudio; Chen, Joyce

  1. By: Li, Shanjun; Liu, Yanyan; Deininger, Klaus
    Abstract: We quantify the importance of peer effects in group lending by estimating a static game of incomplete information. In our model, group members make their repayment decisions simultaneously based on their household and loan characteristics as well as their expectations on other membersâ repayment decisions. Exploiting a rich data set of a microfinance program in India, our estimation results suggest that the likelihood of a member making a full repayment would be 15 percent higher on average if all the other follow members make full repayment compared to the case where none of the other members repay in full. We also find that large inconsistencies exist in the estimated effects of other variables in models that do not incorporate peer effects and control for unobserved heterogeneity.
    Keywords: Peer effects, group lending, joint liability, self-help groups in India, International Development,
    Date: 2009–05
  2. By: Marc Labie (Centre Emile Bernheim, CERMi, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels and Faculté Warocqué, Université Mons-Hainaut.); Pierre-Guillaume Méon (Centre Emile Bernheim, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels and DULBEA, Université Libre de Bruxelles, Brussels.); Ariane Szafarz (Centre Emile Bernheim, CERMi, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels and DULBEA, Université Libre de Bruxelles, Brussels.)
    Abstract: This paper studies how high-powered incentives may affect credit officers’ discriminatory practices in microfinance institutions. Using an agency model applied to a non-profit MFI, we argue that incentive contracts may help align the officer’s behavior with the MFI’s mission. However, since incentives are costly, and the MFI’s budget is limited, even a benevolent institution faces a trade-off between fighting discrimination and raising outreach. Welfare maximization may not imply full eradication of discriminatory practices. A non discriminating welfare-maximizing MFI may thus prefer paying smaller incentives, and letting its credit officer discriminate to some extent.
    Keywords: Microfinance, Discrimination, Credit Officers, Incentives.
    JEL: O16 D82 J33 L31
    Date: 2009–04
  3. By: Khandker, Shahidur R.
    Abstract: Seasonal poverty in Bangladesh, locally known as monga, refers to seasonal deprivation of food during the pre-harvest season of Aman rice. An analysis of household income and expenditure survey data shows that average household income and consumption are much lower during monga season than in other seasons, and that seasonal income greatly influences seasonal consumption. However, lack of income and consumption smoothing is more acute in greater Rangpur, the North West region, than in other regions, causing widespread seasonal deprivation. The analysis shows that agricultural income diversification accompanied by better access to micro-credit, irrigation, education, electrification, social safety net programs, and dynamic labor markets has helped reduce seasonality in income and poverty in regions other than Rangpur in the recent past. Hence, government policies should promote income diversification through infrastructure investments and provide income transfers to the targeted poor to contain income seasonality and poverty in this impoverished part of Bangladesh.
    Keywords: Rural Poverty Reduction,Safety Nets and Transfers,Economic Theory&Research,Inequality
    Date: 2009–04–01
  4. By: Md. Shafiul Azam; Katsushi S. Imai
    Abstract: This study estimates ex ante poverty and vulnerability of households in Bangladesh using Household Income and Expenditure Survey (HIES) data in 2005. Our results show that poverty is not same as vulnerability as a substantial share of those currently above the poverty line is highly vulnerable to poverty in the future. The study finds that those without education or agricultural households are likely to be the most vulnerable. The geographical diversity of vulnerability is considerable, for example, vulnerability in coastal division, i.e., Chittagoan Division is almost double to that of Dhaka and almost four times higher than Khulna Division. It is suggested that ex ante measures to prevent households from becoming poor as well as ex post measures to alleviate those already in poverty should be combined in evaluating poverty. For the chronic poor who lack economic assets, priority should be given to reduction of consumption fluctuations and building up assets through a combination of protective and promotional programmes. Access to financial services, for example, though micro credit programmes, might help poor households build up assets as it smoothes income and consumption, enables the purchase of inputs and productive assets, and provides protection against crises.
    Keywords: poverty, vulnerability, risks, poverty dynamics, Bangladesh
    JEL: C21 C25 I32
    Date: 2009
  5. By: Netty Huertas
    Abstract: Este trabajo busca revisar el microcrédito, en particular el caso del Banco Mundial de la Mujer de Cali. El documento está organizado a partir de generalidades, comenzando con la historia del microcrédito y haciendo énfasis en la definición de microcrédito; luego se traslada el tema a Colombia, se describe cómo inicialmente se creía que era una responsabilidad exclusiva del Estado, y cómo, con el paso del tiempo, el sector privado ha ido tomando parte en esta responsabilidad. Es así que en la historia reciente del microcrédito el gobierno forma parte activa pero más como ente regulador y no como único responsable. Posteriormente se profundizó en el objeto de este estudio, el Banco Mundial de la Mujer (identificado como WWB, por sus siglas en inglés) de la ciudad de Cali, se describieron su historia, sus procesos y sus indicadores de desempeño. Finalmente, las conclusiones resaltan el reto de las instituciones microfinancieras para fomentar el crecimiento del microcrédito.
    Date: 2009–05–02
  6. By: Hernandez, Emilio; Sam, Abdoul; Gonzalez-Vega, Claudio; Chen, Joyce
    Abstract: The impact of public and private transfers on credit markets has not been sufficiently studied and understanding any spill over effects caused by these transfers may be useful for policy makers. This paper estimates the impact of Conditional Cash Transfers (CCTs) and remittances received by poor households in rural Nicaragua on their decision to request a loan. We find that, on average, CCTs did not affect the request of credit while remittances increased it, controlling for potential endogeneity. We argue the reduction in income risk provided by remittances changes borrowersâ expected marginal returns to a loan and/or their creditworthiness, as perceived by lenders. The successful enforcement of the use of CCTs on long-term investments seems to have avoided externalities on the use of short-term credit these households have access to and their creditworthiness.
    Keywords: International Development, D14, F22, O15,
    Date: 2009

This issue is ©2009 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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