New Economics Papers
on Microfinance
Issue of 2009‒07‒03
six papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. The Impact of Microcredit on the Poor in Bangladesh: Revisiting the Evidence By David Roodman; Jonathan Morduch
  2. Group versus Individual Liability: Long Term Evidence from Philippine Microcredit Lending Groups By Xavier Giné; Dean Karlan
  3. Socio-economic Determinants of the Performance of Informal Women Co-operatives in Enugu state, Nigeria By Opata, Patience. I; Nweze, Noble. J
  4. Demand Side Analysis of Microlending Markets in Germany By Alexander S. Kritikos; Christoph Kneiding; Claas Christian Germelmann
  5. The economic crisis and community development finance: an industry assessment By Mark Pinsky; Nancy Andrews; Paul Weech; Ellen Seidman; Rick Cohen
  6. Profits, efficience et genre des micro-entreprises urbaines à Madagascar. Existe-t-il une courbe de Kuznets ? By Jean-Pierre Lachaud

  1. By: David Roodman; Jonathan Morduch
    Abstract: The most-noted studies on the impact of microcredit on households are based on a survey fielded in Bangladesh in the 1990s. Contradictions among them have produced lasting controversy and confusion. Pitt and Khandker (PK, 1998) apply a quasi-experimental design to 1991–92 data; they conclude that microcredit raises household consumption, especially when lent to women. Khandker (2005) applies panel methods using a 1999 resurvey; he concurs and extrapolates to conclude that microcredit helps the extremely poor even more than the moderately poor. But using simpler estimators than PK, Morduch (1999) finds no impact on the level of consumption in the 1991–92 data, even as he questions PK’s identifying assumptions. He does find evidence that microcredit reduces consumption volatility. Partly because of the sophistication of PK’s Maximum Likelihood estimator, the conflicting results were never directly confronted and reconciled. We end the impasse. A replication exercise shows that all these studies’ evidence for impact is weak. As for PK’s headline results, we obtain opposite signs. But we do not conclude that lending to women does harm. Rather, all three studies appear to fail in expunging endogeneity. We conclude that for non-experimental methods to retain a place in the program evaluator’s portfolio, the quality of the claimed natural experiments must be high and demonstrated.
    Keywords: microcredit; impact evaluation; Grameen Bank; Bangladesh; replication; mixed-process models
    JEL: C21 C23 C24 C25 O12 O16
    Date: 2009–06
  2. By: Xavier Giné (World Bank); Dean Karlan (Economic Growth Center, Yale University)
    Abstract: Group liability in microcredit purports to improve repayment rates through peer screening, monitoring, and enforcement. However, it may create excessive pressure, and discourage reliable clients from borrowing. Two randomized trials tested the overall effect, as well as specific mechanisms. The first removed group liability from pre-existing groups and the second randomly assigned villages to either group or individual liability loans. In both, groups still held weekly meetings. We find no increase in default and larger groups after three years in pre-existing areas, and no change in default but fewer groups created after two years in the expansion areas.
    Keywords: microfinance, group lending, group liability, joint liability, social capital, micro-enterprises, informal economies, access to finance
    JEL: C93 D71 D82 D91 G21 O12 O16 O17
    Date: 2009–01
  3. By: Opata, Patience. I; Nweze, Noble. J
    Abstract: Paper to be presented for International Conference of Women in Africa and African Diaspora (WAAD) at Yaradua Conference Centre Abuja, August 3-11, 2009
    Keywords: Women, Credit and Savings, Agribusiness, Agricultural Finance, Community/Rural/Urban Development, Consumer/Household Economics, Crop Production/Industries, Financial Economics, Food Consumption/Nutrition/Food Safety, Food Security and Poverty, Institutional and Behavioral Economics, Marketing,
    Date: 2009–08–03
  4. By: Alexander S. Kritikos; Christoph Kneiding; Claas Christian Germelmann
    Abstract: In developing and transition economies, microlending has become an effective instrument for providing micro businesses with the necessary financial resources to launch operations. In the industrialized countries, with their highly developed banking systems, however, there has been ongoing debate on the question of whether an uncovered demand for microlending services exists. The present pilot study explores customer preferences for microlending products in Germany. Among the interviewed business owners, 15% reported revolving funding needs and an interest in microloans. We find that potential recipients of microloan products are retail business owners, foreign business owners, and persons who had previously received private loans. Furthermore, financial products should feature rapid access to short-term loans.
    Keywords: Entrepreneurship, Microlending, Market Research
    JEL: G21 D12 M31
    Date: 2009
  5. By: Mark Pinsky; Nancy Andrews; Paul Weech; Ellen Seidman; Rick Cohen
    Abstract: For thirty years, the community development finance industry—banks, credit unions, loan funds, community development corporations, venture funds, microfinance institutions—has quietly provided responsible, well-designed and wellpriced credit to lower-income people and communities. These entities have provided this credit with the support of the federal government, through the Community Development Financial Institutions Fund, the Low Income Housing and New Markets Tax Credits, the Small Business Association, the U.S. Department of Agriculture, and various housing and facilities development programs. The industry has also been supported in its efforts by mainstream institutions such as banks and insurance companies, most frequently motivated by the Community Reinvestment Act (CRA) or by concern that CRA-like obligations would be imposed. Philanthropic foundations and supporters and state and local governments have also played their parts. The result: a community development finance industry that has survived and even prospered during recessions and political downdrafts. But the field, and the communities, businesses, and individuals it serves, are hurting now, and fearing bigger hurt. This paper examines this situation and focuses attention on what needs to be done.
    Date: 2009
  6. By: Jean-Pierre Lachaud (GED, Université Montesquieu Bordeaux IV)
    Abstract: Fondée sur les enquêtes prioritaires de Madagascar de 2001 et 2005, la présente étude examine l’efficience économique des micro-entreprises urbaines selon le genre, en vue de contribuer à mieux comprendre la féminisation de l’urbanisation de la pauvreté. Premièrement, les fonctions de profits montrent que l’élasticité des profits par rapport à l’emploi est plus importante que pour le capital, et que la sensibilité par rapport aux deux facteurs de production a crû au cours de la période. Cependant, l’élasticité-emploi des profits est plus élevée dans les micro-entreprises féminines. En outre, les profits sont influencés par le mode de gestion, la localisation dans les grandes villes, et les caractéristiques des micro-entrepreneurs : différentiel de profits en faveur des micro-entreprises masculines et rôle majeur de l’instruction, notamment dans les micro-entreprises féminines. Si les produits marginaux du travail des micro-entreprises masculines et féminines sont assez comparables, le produit marginal du capital est beaucoup plus élevé dans les secondes que dans les premières. En même temps, dans les micro-entreprises féminines, le produit marginal du travail relatif a décliné, alors que l’inverse a prévalu en ce qui concerne le produit marginal relatif du capital. Deuxièmement, les frontières stochastiques de profits, fondées sur les modèles exponentiel et gamma, produisent des coefficients assez proches de ceux qui résultent des estimations par les moindres carrés ordinaires. Mais, la part de la variance de l’inefficience économique dans la variance totale est beaucoup plus importante pour les micro-entreprises gérées par un homme, que pour celles ayant une femme à leur tête, et a fortement augmenté au cours de la période. En fait, les taux d’efficience économique sont assez faibles, notamment en 2005 où, en moyenne, les micro-entreprises réalisent seulement un peu plus de la moitié des profits qu’elles pourraient obtenir si elles étaient pleinement efficientes. En outre, la situation des micro-entreprises féminines s’est dégradée relativement aux micro-entreprises masculines, le taux d’efficience économique des premières ayant décliné de 28,5 pour cent entre 2001 et 2005, contre 21,5 pour cent pour les micro-entreprises ayant un homme à leur tête – modèle gamma. Dans ce contexte, le taux d’efficience économique des micro-entreprises urbaines s’élève jusqu’à un certain seuil des profits, et décroît par la suite, ce qui évoque la célèbre courbe de Kuznets. En définitive, il semblerait que le déclin absolu et relatif de l’efficience économique des micro-entreprises urbaines gérées par les femmes puisse constituer un autre élément d’explication de la féminisation de l’urbanisation de la pauvreté, conjointement avec la détérioration des autres dimensions du marché du travail. Based on the Madagascar priority surveys of 2001 and 2005, the study examines the economic efficiency of urban micro-enterprises by gender, in order to gain a better understanding of the feminization of the urbanization of poverty. First, profit functions show that the elasticity of profits with respect to employment is more important than the capital, and the sensitivity to the two factors of production has increased during the period. However, the employment elasticity of profits is higher in women's micro-enterprises. In addition, profits are influenced by the mode of management, the localization in large cities, and the characteristics of micro-entrepreneurs: differential of profits in favor of men’s micro-enterprises and significant role of education, especially in women’s micro-enterprises. If the marginal product of labour of micro-enterprises managed by men and women are quite comparable, the marginal product of capital is much higher in the latter than in the former. At the same time, in micro-enterprises managed by women, the relative marginal product of labour has declined, while the opposite prevailed with regard to the relative marginal product of capital. Second, the stochastic frontier profit, based on the exponential and gamma models, produce coefficients rather close to those which result from the ordinary least squares estimates. But the share of the variance of the economic inefficiency in the total variance is much more important for micro-enterprises managed by a man than for those having a woman at their head, and has greatly increased during the period. In fact, the rates of economic efficiency are quite low, especially in 2005 where, on average, micro-enterprises get only slightly more than half of the profits they could obtain if they were fully efficient. In addition, the situation of women's micro-enterprises has deteriorated relative to men's micro-enterprises, the economic efficiency of the first having declined by 28.5 percent between 2001 and 2005, against 21.5 per cent for micro-enterprises with a man at their head – gamma model. In this context, the rate of economic efficiency of urban micro-enterprises rises until a certain threshold of the profits, and decrease thereafter, suggesting the famous Kuznets curve. Ultimately, it seems that the decline in absolute and relative economic efficiency of urban micro-enterprises managed by women can be an additional explanation of the feminization of the urbanization of poverty, together with the deterioration of other dimensions of the labour market. (Full text in french)
    JEL: D24 O12 O17
    Date: 2009–02

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