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on Microfinance |
| By: | Toshio Kondo; Aniceto Orbeta Jr.; Clarence Dingcong; Christine Infantado (Philippine Institute for Development Studies) |
| Abstract: | This paper reports on the impact evaluation study of the Rural Microenterprise Finance Project (RMFP) in the Philippines. RMFP aimed to support efforts of the Government of the Philippines to strengthen rural financial institutions by assisting organizations that employed the Grameen Bank Approach (GBA) in providing credit to the poor. The project was implemented by the People’s Credit and Finance Corporation (PCFC) and funded by the Asian Development Bank. The evaluation uses a quasi-experimental design with incoming clients of randomly selected participating microfinance institutions as the comparison group. An important innovation in the study is the inclusion of the appropriate number of former clients among the treatment group. Qualified non-participating households provide the control for area effects. The impact estimation uses the difference-in-difference estimation technique which effectively controls for the known sources of biases namely- nonrandom program participation (sample selection), non-random program placement, and non-random drop-out. The survey enumerated some 2,200 households divided evenly between treatment and comparison areas. It covered 116 villages spread throughout the three groups of islands (Luzon, Visayas, and Mindanao) and 38 microfinance institutions consisting of three types - banks, cooperatives, and non-government organizations. The survey results show the program appears to be hitting only a limited number of the intended target as majority of the existing clients and the incoming clients are found to be not poor according to official definition. The estimation results show a mildly significant positive impact on per capita income, per capita total expenditure and per capita food expenditure of loan availability. This impact, however, was found to be regressive – negative on poorer households and positive only for households in the richest quartile. The program has enabled participants to reduce dependence on presumably higher-priced non-program loans as well as increased the proportion of those having savings. It has also made program clients busier with larger number of enterprises engaged in and more workers employed in these enterprises. No significant impact, however, was found on assets and human capital investments. The foregoing results led the authors to recommend that for microfinance programs to be effective as a poverty-alleviation tool there is a need to review and constantly monitor the effectiveness of the targeting procedures. In addition, it was pointed out that there maybe a need to assist the poor in selecting appropriate projects that not only ensure loan repayment but also generate ample profit as well. |
| Keywords: | Microfinance, impact evaluation, quasi-experimental design, Philippines |
| JEL: | G21 D14 D10 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:eab:develo:1751&r=mfd |
| By: | Anaïs Périlleux (Centre Emile Bernheim, CERMi, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels and Warocqué School of Business and Economics, Université de Mons.) |
| Abstract: | This article shows how today’s West African microfinance cooperatives could learn from the experience of 19th century German financial cooperatives (FCs) to address their members’ need for long-term loans, especially in rural areas. FCs have short-term internal resources, consisting mainly of members’ savings. Thus, providing long-term loans requires dealing with a maturity mismatch, which in turns leads to governance issues. The 19th century German FCs provided long-term loans (10 years and more) thanks to two mechanisms: the liquidity facilities provided by regional centrals and an efficient corporate governance system based on cooperative auditing associations. We discuss the feasibility of implementing those mechanisms in today’s West African microfinance cooperatives and come up with practical policy-oriented recommendations. |
| Keywords: | Microfinance, Cooperative, Governance, long-term loan, maturity mismatch |
| JEL: | G2 G3 L3 N2 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:10-005&r=mfd |
| By: | Gilbert M. Llanto; Joselito Almario; Marinella Gilda Llanto-Gamboa (Philippine Institute for Development Studies) |
| Abstract: | This study assesses the state of micro-insurance in the country, identifies the players and their performance, and the challenges facing micro-insurance development. The term “micro� pertains to the capacity of a program to handle the small, sometime irregular cash flows of poor households, who have been excluded in the commercial insurance system for a variety of reasons. Micro-insurance products, specifically designed with the poor in mind, will help mitigate risks and reduce the vulnerability of poor households. The most prominent forms of micro-insurance are life insurance and health insurance (carried out as part of an overall health care package that links the health insurance to a health facility), which have been designed to be responsive to the need of poor households. The paper reports 17 players in the emerging micro-insurance industry, consisting of 12 cooperatives, three NGOs/MFIs, and two transport associations that are offering “home-made� micro-insurance. These “home-made� microinsurance products continue to be provided despite their actuarial weaknesses and lack of financial capacity of the providers because of very strong demand from their membership for such financial products. Given their advantages over commercial insurance companies, the mutual benefit associations (MBAs) are the usual vehicles of micro-insurance programs. In 2004, 18 MBAs were registered with the Insurance Commission (IC) with accumulated assets of PhP14.8 billion. Members’ equity totaled PhP4.25 billion. The paper calls attention to the institutional, policy and regulatory issues and challenges facing micro-insurance. |
| Keywords: | micro-insurance, risk protection services, insurance industry, life insurance, mutual benefit associations, social protection, micro-finance institutions, micro-insurance delivery |
| JEL: | G21 G22 G20 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:eab:develo:1761&r=mfd |
| By: | Gilberto M. Llanto; Gabrielle Roanne Laviña (Philippine Institute for Development Studies) |
| Abstract: | The paper reviews the innovations developed by some financial institutions to meet the challenges of microfinance and rural finance markets. Innovations could be new products and methodologies or refinements to existing practices that are created in response to market inefficiencies and changing demands of a target clientele. Essentially, innovations by financial institutions are not only a means to reach the large unserved poor households but also to provide more and better products and services that could contribute to increasing profitability of the institutions adopting them. The first type is innovations on the financial system which refers to changes in the structure of the financial sector particularly in the legal and regulatory framework. The second type of innovation is institutional innovation which deals with the changes in the structure, organization, and legal form of the institution. Another type of innovation is the process innovation. This refers to the introduction of new business processes leading to increased efficiency or market expansion (most often associated with technological progress). The last type of innovations is products innovation which refers to the introduction of new or modified products or services tailored to the needs of the rural borrowers. |
| Keywords: | innovation, rural finance, microfinance, institutional innovation, process innovation, products innovation, systemic level of innovation, scarcity of collateral, leasing |
| JEL: | G21 G22 O31 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:eab:develo:1762&r=mfd |
| By: | Gilberto M. Llanto; Maria Piedad Geron; Joselito Almario (Philippine Institute for Development Studies) |
| Abstract: | Low income households find it hard to cope with the risks brought about by an illness or injury, death of a family member, man-made calamities and natural disasters. Demand for microinsurance products is growing and both formal and informal microinsurance schemes have started to emerge to address this need. This paper seeks to provide a better understanding of the micro-insurance market in the Philippines and to draw certain principles for micro-insurance regulation from a review of the Philippine experience with micro-insurance. The Philippine experience on the provision of micro-insurance services and the interaction between the insurance providers and the regulator may help inform the development of certain principles for micro-insurance regulation. |
| Keywords: | Micro-insurance, regulatory framework, mutual benefit association, Insurance Commission, risk protection, partner agent approach |
| JEL: | G21 G22 G28 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:eab:develo:1765&r=mfd |
| By: | Gilberto M. Llanto; Ma. Piedad S. Geron; Joselito S. Almario (Philippine Institute for Development Studies) |
| Abstract: | Illness or injury, death of a family member, man-made calamities and natural disasters have a devastating effect on those poor households’ cash flow, liquidity and earning capacities and thus, on household welfare. Demand for micro-insurance products is growing in view of continuing risks to household welfare and the seeming inability of the government to address this issue. This study seeks to provide a better understanding of the micro-insurance market in the Philippines and to draw certain principles for micro-insurance regulation from a review of the Philippine experience with micro-insurance. The study describes how policies, legal, regulatory and supervisory framework governing insurance have shaped the development of the market and vice versa. The Philippine experience on the provision of micro-insurance services and the interaction between the insurance providers and the regulator may help inform the development of certain principles for micro-insurance regulation. |
| Keywords: | micro-insurance, catastrophic events, moral hazard, market conduct regulation, product regulation |
| JEL: | G21 G22 G28 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:eab:develo:1767&r=mfd |
| By: | Giuseppe Coco (Department of Economics & Mathematics, University of Bari); Giuseppe Pignataro (DEFAP, Catholic University of Milan, Milan, Italy) |
| Abstract: | Credit market imperfections can prevent the poor from making profitable investments. Under asymmetric information observable features, such as wealth and collateral, play an important role in determining who gets credit, in violation of the Equality of Opportunity principle. We define equality of opportunity as the equal possibility of getting credit for a given aversion to effort. We first establish that, due to larger cross subsidization in high collateral classes of borrow- ers, richer individuals are more likely to get credit for a given aversion to effort. Our second result is that Inequality of Opportunity is associated with an inefficient allocation of resources among classes of borrowers. The marginal borrower in classes that post more collateral exerts less effort in equilibrium (and therefore produces lower aggregate surplus) than the marginal borrower in lower collateral classes. This suggests that public credit policies should be targeted at poorer classes of would be borrowers both for equity and efficiency reasons, which rarely occurs in practice. |
| Keywords: | equality of opportunity, credit, moral hazard, crosssubsidization, collateral |
| JEL: | D63 D8 H8 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:bai:series:wp0026&r=mfd |