New Economics Papers
on Microfinance
Issue of 2010‒02‒20
three papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. A behavioral model of simultaneous borrowing and saving By Basu, Karna
  2. Banking the unbanked using prepaid platforms and mobile telephones in the United States By Prior, Francesc; Santoma, Javier
  3. The Distributive impact of reforms in credit enforcement: Evidence from Indian debt recovery tribunals By Ulf von Lilienfeld-Toal; Dilip Mookherjee; Sujata Visaria

  1. By: Basu, Karna
    Abstract: Why do individuals borrow and save money at the same time? I present a model in which sophisticated time-inconsistent agents, when faced with a future investment opportunity, rationally choose to save their wealth and then borrow to fund the investment. The combination of savings and a loan generates incentives for future selves to invest optimally by punishing over-consumption. This paper contains two main results. First, I show that agents who simultaneously save and borrow can have higher lifetime welfare than those who don’t. Second, I show that agents who have access to a non-secure savings technology can be better off than those who only have access to secure savings.
    Keywords: saving; borrowing; microfinance; hyperbolic discounting
    JEL: O1 O12
    Date: 2009
  2. By: Prior, Francesc (IESE Business School); Santoma, Javier (IESE Business School)
    Abstract: The rapid growth of mobile phone usage and the continuous rise in wireless coverage fuel the expectations that access to financial services trough mobile phones could transform the way financial services are provided. The emergence of new and more efficient business models, can potentially resolve supply inefficiencies that explain the large unbanked population that exists in the USA, much larger than in most developed countries. Nearly 40 million US households (approximately 73 million people) are financially underserved (CFSI, 2007), of which 15 million households (approximately 28 million people) are totally unbanked. This problem is explained by the non adequacy of the value proposals offered by financial institutions to the demands of the US customers. The areas of poor alignment refer mostly to the design of products and the marketing and distribution networks used. To resolve these misalignments, this paper will argue that business models based on prepaid cards as products and mobile phones as transactional and distribution channels could be used in order to close the supply gap. We will call the business model proposed based on prepaid products and mobile phones mobile banking, since these two elements are the basis of the business model used companies such as Smart Money and G-Cash in the Phillipines, Wizzit in South Africa and M-Pesa in Kenya.
    Keywords: prepaid platform; unbanked; financial services; mobile phones; prepaid cards;
    Date: 2010–01–07
  3. By: Ulf von Lilienfeld-Toal (Department of Finance, Stockholm School of Economics); Dilip Mookherjee (Department of Economics, Boston University); Sujata Visaria (Department of Economics, Boston University)
    Abstract: It is generally presumed that strengthening the enforcement of lender rights expands the set of incentive compatible loan contracts, resulting in increased access to credit for all types of borrowers. This is based on an implicit assumption of inlnitely elastic supply of loans. With inelastic supply, strengthening enforcement can result in greater exclusion of poor borrowers from credit markets and a reallocation of credit from poor to wealthy borrowers. Using a dataset of capital project loans given by a large Indian bank to lrms of varying asset sizes, we lnd evidence of such adverse distributional impacts of a reform to strengthen lender rights implemented across Indian states in the 1990s.
    Date: 2009–01

This issue is ©2010 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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