nep-mfd New Economics Papers
on Microfinance
Issue of 2009‒09‒19
four papers chosen by
Olivier Dagnelie
Instituto de Analisis Economico, CSIC

  1. Can Group Based Credit Uphold Smallholder Farmers Productivity and Reduce Poverty in Africa? Empirical Evidence from Kenya By Owuor, George
  2. Credit Markets for Small Farms: Role for Institutional Innovations By Pillarisetti, Satish; Mehrotra, Nirupam
  3. To whom should we be fair? Ethical issues in Balancing Stakeholder Interests from Banco Compartamos Case Study. By Arvind Ashta; Marek Hudon
  4. What are the Key Constraints in Technical Efficiency of Smallholder Farmers in Africa? Empirical Evidence from Kenya By Owuor, George; Shem, Ouma A.

  1. By: Owuor, George
    Abstract: With access to formal credit proving almost impossible to smallholder farmers, group based lending is steadily becoming popular in Africa. However, little is documented on the role of such programmes. In this paper, we employ propensity score matching and endogenous switching regime methods on a sample of 600 smallholder farmers drawn from two agricultural regions in Kenya in 2007. The goal of the survey was to evaluate the economic impact of group based credit programmes on smallholder farmersâ productive performance and poverty reduction in Kenya. Our findings reveal gains with significant impacts of group based credit on incomes in the range of 300 and 480 euros as well as via purchased inputs, with participation in such credit programmes significantly constrained by low literacy levels prevalent among a majority of rural farm households, influence of gender, with female headed households dominating in membership and little participation on the part of male headed households, poor rural access road infrastructure and constraints in group management resulting from lack of cohesion as the group grows in membership. These factors form the key recommendations for policy intervention to achieve sustainability of group based informal lending among farm households in Africa and other similar developing nations.
    Keywords: Informal Micro-Finance, Smallholder Farmers, Performance in Kenya, Agricultural Finance, Community/Rural/Urban Development, Labor and Human Capital, Production Economics, Productivity Analysis,
    Date: 2009–08–20
  2. By: Pillarisetti, Satish; Mehrotra, Nirupam
    Abstract: Indian agriculture is characterized by the predominance of smallholders. This paper seeks to examine the access of small holders to agriculture credit in the context of financial sector reforms in India in the nineties. It explores the role of institutional and non institutional agencies in extending agriculture credit to the smallholder and the ground realities as revealed by recent data sets. The nineties also saw the unfolding of the largest microfinance programme in the world in India. While this was very successful in bringing micro enterprises under the credit purview, it was unable to cater to the need for agriculture credit. This paper examines the reasons for this and suggests that newer kinds of institutional innovations in the Pilot stage like, Joint Liability Groups, VDC- Farmers Club Model, SHG-Contract Farming Linkage model which seek to overcome the difficulties faced by smallholders in accessing agriculture credit are effective. They need to be upscaled and mainstreamed in order to bring about vibrancy in the rural credit market in India.
    Keywords: Agriculture credit, Farm Size, Land Economics/Use, Q1, Q15,
    Date: 2009–08–20
  3. By: Arvind Ashta (Burgundy School of Business, CEREN, France); Marek Hudon (Centre Emile Bernheim, CERMi, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels.)
    Abstract: In the world of microfinance, interest rate ethics is an important issue, thrown into the limelight by the Initial Public Offering of Compartamos which resulted in millions of dollars of gains, some of which found their way into private pockets. These high gains were based on high interest rates, raising ethical questions. The paper then uses a stakeholder analysis to explain the interests of different stakeholders in this case and present that fairness to one group of stakeholders is often at the expense of another group. We take the position that in this case, specifically, the firm objectives could have been met without such ethical trade-offs. The specifics of the case are then generalised to all NGOs participating in for-profit firms.
    Keywords: Agency problem, business ethics, fairness, governance, microfinance, stakeholder
    Date: 2009–09
  4. By: Owuor, George; Shem, Ouma A.
    Abstract: The idea that smallholder farmers are reasonably efficient has triggered much debate in Sub-Saharan Africa. Indeed, efficiency of smallholder farmers has implications for choice of development strategy; reason being that Sub-Saharan countries derive over 60% of their livelihoods from smallholder agriculture and rural economic activities. This paper evaluates factors that promote production efficiency among smallholder farmers in Kenya as avenues for policy intervention. A production frontier function was fitted to a random sample derived from a survey carried in 2007. Results show that all conventional inputs had the expected significance. On the inefficiency indicators, ownership to farmland, attendance to agricultural workshops, access to credit and participation in self-help groups significantly reduced inefficiency, while age, market distance, female gender and formal education increased inefficiency. Our findings suggest that within the available technologies, farmers can improve on their productivity if they nurture teamwork as in groups where labour is shared. Besides, better roads would reduce transaction costs and promote higher returns, and training in agriculture would boost efficient resources use for better performance. Therefore, there exists opportunity to improve efficiency in production given existing farm technologies.
    Keywords: Technical Efficiency, Smallholder Farmers, Africa, Productivity Analysis,
    Date: 2009–08–20

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