nep-mfd New Economics Papers
on Microfinance
Issue of 2010‒04‒17
nine papers chosen by
Olivier Dagnelie
Instituto de Analisis Economico, CSIC

  1. The Dynamics of Cooperation in Group Lending - A Microfinance Experiment By Peter Werner
  2. Performance of Microfinance: The Role of Subsidies By Ahmad Nawaz
  3. Efficiency and Productivity of Microfinance: Incorporating the Role of Subsidies By Ahmad Nawaz
  4. Micro finance in Palestine: issues, performance, and trajectories By Paolo Di Martino; Shaker Sarsour
  5. A Social Performance Analysis of Italian Microfinance By Fabrizio Botti; Marcella Corsi
  6. Financial Sector Development, Economic Growth, and Poverty Reduction: A Literature Review By Zhuang, Juzhong; Gunatilake, Herath; Niimi, Yoko; Ehsan Khan, Muhammad; Jiang, Yi; Hasan, Rana; Khor, Niny; S. Lagman-Martin, Anneli; Bracey, Pamela; Huang, Biao
  7. Can Micro Health Insurance Reduce Poverty? Evidence from Bangladesh By Syed Abdul Hammid; Jennifer Roberts; Paul Mosley
  8. Sustainability and organizational design in informal groups, with some evidence from Kenyan Roscas By Anderson, Siwan; Baland, Jean-Marie; Moene, Karl O.
  9. A Network Structure of ROSCAs (Rotating Savings and Credit Associations) : ERGMs (Exponential Random Graph Models) Applied to a Leaders' Network in Rural Uzbekistan By Hiwatari, Masato

  1. By: Peter Werner
    Abstract: We investigate the dynamics of borrower behavior in a microfinance experiment in which subjects are jointly responsible for credit repayment. Although cooperation levels are generally high, moral hazard problems persist among borrowers. Moreover, the path dependency of decisions mitigates the insurance effect of joint liability. We compare two conversion mechanisms from joint to individual liability. First, an active choice of the joint liability contract does not systematically increase cooperation. Second, conversion based on repayment success tends to have a detrimental impact on cooperation among the remaining joint liability borrowers.
    Keywords: microfinance, group lending, individual lending, social preferences
    JEL: O16 G21 C92 H41
    Date: 2010–03–11
    URL: http://d.repec.org/n?u=RePEc:kls:series:0049&r=mfd
  2. By: Ahmad Nawaz (Pakistan Institute of Development Economics.)
    Abstract: Unlike conventional finance institutions, Microfinance institutions (MFIs) strive for financial sustainability but also empowerment of the poor. This social nature of MFIs is mainly financed by subsidies from donors. This paper measures the extent of subsidization in MF sector for the years 2005 and 2006 using Yaron’s Subsidy Dependence Index (SDI) which measures the social cost of subsidized MFIs in a short time frame. This latest data set has been generated from the audit reports of the 204 MFIs with 23 million borrowers in 54 Countries worldwide constituting a significant part of the microfinance outreach worldwide. Based on our subsidy calculations, for the year 2005, 153 MFIs out of 204 are subsidy dependent while for year 2006 it is 122 out of 179 MFIs. A with & without subsidy analysis of conventional financial ratios confirm the fact that MFIs financial performance declines substantially with-out subsidies. Based on the evidence, the paper also highlights the factors which contribute and dec rease the sustainability of microfinance
    Keywords: Microfinance institutions, Subsidies, Sustainability
    JEL: G21 H2 D02
    Date: 2010–02
    URL: http://d.repec.org/n?u=RePEc:sol:wpaper:10-008&r=mfd
  3. By: Ahmad Nawaz (Pakistan Institute of Development Economics.)
    Abstract: The social nature of MFIs is mainly financed by subsidies from donors. Therefore, the role of subsidies cannot be under estimated in MFIs efficiency and productivity analysis. This paper is a first attempt to measure the financial efficiency and productivity of Microfinance Institutions (MFIs) worldwide taking into account the subsidies received by MFIs by using the non-parametric Data Envelopment Analysis (DEA). Towards this aim, a three-stage analysis is carried out. Firstly, technical and pure efficiency scores are calculated by splitting subsidies into input and output and entered into the DEA framework specifications depending on whether they are generating benifits (negative subsidies) or cost (positive subsidies) to the society. Secondly DEA-based Malmquist indices are calculated to analyze the intertemporal productivity change. Thirdly, Tobit Regression analysis are carried out to test a series of hypotheses concerning the relationship between financial efficiency and other indicators related to MFIs productivity, organization, outreach, sustainability and social impact. Overall subsidies contribute to financial efficiency of MFIs albeit marginally. Results uphold the tradeoff between outreach to the poor and financial efficiency. Thus MFIs which cater to the poor tend to bemore inefficient than those with clients relatively well off. Also evident is the fact that lending to women is efficient only in the presence of subsidies. MFIs in South Asia and Middle East & North Africa tend to be less efficient than the others.
    Keywords: Microfinance, Subsidies, Efficiency, Non-paprametric analysis
    JEL: G21 H2 H21 C14
    Date: 2010–02
    URL: http://d.repec.org/n?u=RePEc:sol:wpaper:10-009&r=mfd
  4. By: Paolo Di Martino; Shaker Sarsour
    Abstract: Despite the growing interest in the subject of micro finance very little, if any, academic research on the Palestinian case exists. This paper starts filling this gap by analysing the development of the micro credit industry in Palestine between 2000 and 2008. This paper shows that at macro level the industry has a strong potential for growth, but its full development is frustrated by inefficiencies in credit allocation and high level of risk, whose most evident sign being the problem of late or no re-payment of loans. By using data from one of the most important micro credit agencies, the Arab Centre for Agricultural Development (ACAD), we analyse the determinants of late payment. The most important results are that high interest rates increase the probability of late repayment, loan size, when above the “micro” threshold has no impact, while female customers and the one with banks guarantees are less likely to pay late. The policy implications are that while going towards a more “market-based” approach might provide some advantages in terms of risk reduction, it will not per se solve the problem while will certainly expose the most vulnerable sectors of the population to further credit rationing
    Keywords: Palestine; micro finance; economic development
    JEL: G21 O17 O53
    Date: 2009–12
    URL: http://d.repec.org/n?u=RePEc:usi:wpaper:581&r=mfd
  5. By: Fabrizio Botti (Dipartimento di Studi Sociali Economici Attuariali e Demografici, Sapienza University of Rome); Marcella Corsi (Centre Emile Bernheim, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels and Dipartimento di Studi Sociali Economici Attuariali e Demografici, Sapienza University of Rome.)
    Abstract: This paper aims to analyse Italian MFIs social performance according to the core set of common indicators and framework developed by the Social Performance Task Force using data collected by Fondazione Giordano Dell’Amore and Fondazione Risorsa Donna in 2008 for the European Microfinance Network (EMN) Survey 2006-2007. Key features and client profiles of Italian leading MFIs are also identified with respect to their social performance indicators. The methodology adopted in the current social performance analysis follows the reference framework specified in Social Performance Standard Reports. It examines the whole process of translating MFIs mission into social impact and includes the analysis of several connected dimensions of the social performance pathway corresponding to areas covered by the indicators: the intent of the MFI, the effectiveness of the internal system and activities in achieving its targets, MFI outputs and eventually its capacity to positively affect clients life and achieve social goals.
    Keywords: Microfinance, Italy, Social Performance Indicators
    JEL: G21 G29 O16 O52
    Date: 2010–03
    URL: http://d.repec.org/n?u=RePEc:sol:wpaper:10-020&r=mfd
  6. By: Zhuang, Juzhong (Asian Development Bank); Gunatilake, Herath (Asian Development Bank); Niimi, Yoko (Asian Development Bank); Ehsan Khan, Muhammad (Asian Development Bank); Jiang, Yi (Asian Development Bank); Hasan, Rana (Asian Development Bank); Khor, Niny (Asian Development Bank); S. Lagman-Martin, Anneli (Asian Development Bank); Bracey, Pamela (Asian Development Bank); Huang, Biao (Asian Development Bank)
    Abstract: This paper reviews the theoretical and empirical literature on the role of financial sector development, with a view to deepening understanding of the rationale of development assistance to the financial sector of developing countries. The review leads to the following broad conclusions: (i) there are convincing arguments that financial sector development plays a vital role in facilitating economic growth and poverty reduction, and these arguments are supported by overwhelming empirical evidence from both cross-country and countryspecific studies; (ii) there are however disagreements over how financial sector development should be sequenced in developing countries, particularly the relative importance of domestic banks and capital markets and, in developing the banking sector, the relative importance of large and small banks; (iii) while broadening the access to finance by microenterprises, small and medium-sized enterprises (SMEs), and vulnerable groups is recognized as critically important for poverty reduction, it is also widely believed that microfinance and SME credit programs need to be well designed and targeted to be effective. In particular, these programs need to be accompanied by other support services such as provision of training and capacity building, assistance in accessing markets and technologies, and addressing other market failures; and (iv) financial sector development and innovation will bring risks, and it is therefore essential to maintain sound macroeconomic management, put in place effective regulatory and supervisory mechanisms, and carry out structural reforms in developing the financial sector. The paper argues that these conclusions provide a strong justification for development assistance to target financial sector development as a priority area, and that, like any public sector intervention, such assistance should be designed to address market and nonmarket failures. The paper also highlights several areas where more research is urgently needed, in particular, how to sequence financial sector development, how to balance the need for financial innovation and that for economic and financial stability, and how to make microfinance and SME credit programs work better to reduce poverty.
    Date: 2009–10
    URL: http://d.repec.org/n?u=RePEc:ris:adbewp:0173&r=mfd
  7. By: Syed Abdul Hammid (Department of Economics, The University of Sheffield); Jennifer Roberts (Department of Economics, The University of Sheffield Author-Person=pro228); Paul Mosley (Department of Economics, The University of Sheffield)
    Abstract: This paper examines the impact of micro health insurance on poverty reduction in rural areas of Bangladesh. The research is based on household level primary data collected from the operating areas of the Grameen Bank during 2006. A number of outcome measures relating to poverty status are considered; these include household income, stability of household income via food sufficiency and ownership of non-land assets, and also the probability of being above or below the poverty line. The results show that micro health insurance has a positive association with all of these indicators, and this is statistically significant and quantitatively important for food sufficiency.
    Keywords: Microcredit, Micro Health Insurance, Poverty, Grameen Bank
    JEL: O12
    Date: 2010–01
    URL: http://d.repec.org/n?u=RePEc:shf:wpaper:2010001&r=mfd
  8. By: Anderson, Siwan (Department of Economics, University of British Columbia); Baland, Jean-Marie (CRED, University of Namur); Moene, Karl O. (Dept. of Economics, University of Oslo)
    Abstract: Informal groups cannot rely on external enforcement to insure that members abide by their obligations. It is generally assumed that these problems are solved by "social sanctions" and reputational effects. The present paper focuses on roscas, one of the most commonly found informal financial institutions in the developing world. We first show that, in the absence of an external (social) sanctioning mechanism, roscas are never sustainable, even if the defecting member is excluded from all future roscas. We then argue that the organizational structure of the rosca itself can be designed so as to reduce the severity of enforcement issues. The implications of our analysis are tested against first-hand evidence from rosca groups in a Kenyan slum.
    Keywords: Roscas; informal financial institutions; developing world
    JEL: G20
    Date: 2010–02–05
    URL: http://d.repec.org/n?u=RePEc:hhs:osloec:2003_017&r=mfd
  9. By: Hiwatari, Masato
    Abstract: This paper empirically analyzes a network structure created by the ROSCAs (Rotating Savings and Credit Associations) related to a leaders' network in rural Uzbekistan. The estimation methodology is based on the recent development of ERGMs (Exponential Random Graph Models) whose approximate maximum likelihood estimators are produced by MCMC (Markov Chain Monte Carlo) algorithms. The paper reveals the tendencies of the transitive triad structure of the network that can facilitate the tracking of defecting members.
    Keywords: ROSCAs, Networks, Risk-Sharing, ERGMs, MCMC,
    JEL: O1 I3
    Date: 2010–02
    URL: http://d.repec.org/n?u=RePEc:hok:dpaper:221&r=mfd

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