New Economics Papers
on Microfinance
Issue of 2010‒05‒22
three papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. When Is the Optimal Lending Contract in Microfinance State Non-Contingent? By Jeon, Doh-Shin; Menicucci, Dominico
  2. Enterprise recovery following natural disasters By de Mel, Suresh; McKenzie, David; Woodruff, Christopher
  3. Food Security in Thailand: Status, Rural Poor Vulnerability, and Some Policy Options By Somporn Isvilanonda; Isriya Bunyasiri

  1. By: Jeon, Doh-Shin; Menicucci, Dominico
    Abstract: Whether a microfinance institution should use a state-contingent repayment or not is very important since a state-contingent loan can provide insurance for borrowers. However, the classic Grameen bank used state non-contingent repayment, which is puzzling since it forces poor borrowers to make their payments even under hard circumstances. This paper provides an explanation to this puzzle. We consider two modes of lending, group and individual lending, and for each mode we characterize the optimal lending and supervisory contracts when a staff member (a supervisor) can embezzle borrowers' repayments by misrepresenting realized returns. We identify the main trade-off between the insurance gain and the cost of controlling the supervisor's misbehavior. We also found that group lending dominates individual lending either by providing more insurance or by saving audit costs.
    JEL: O16 D82 G20
    Date: 2010–03–09
  2. By: de Mel, Suresh; McKenzie, David; Woodruff, Christopher
    Abstract: Using data from surveys of enterprises in Sri Lanka after the December 2004 tsunami, the authors undertake the first microeconomic study of the recovery of the private firmsin a developing country following a major natural disaster. Disaster recovery in low-income countries is characterized by the prevalence of relief aid rather than of insurance payments; the data show this distinction has important consequences. The data indicate that aid provided directly to households correlates reasonably well with reported losses of household assets, but is uncorrelated with reported losses of business assets. Business recovery is found to be slower than commonly assumed, with disaster-affected enterprises lagging behind unaffected comparable firms more than three years after the disaster. Using data from random cash grants provided by the project, the paper shows that direct aid is more important in the recovery of enterprises operating in the retail sector than for those operating in the manufacturing and service sectors.
    Keywords: Microfinance,Debt Markets,Banks&Banking Reform,Natural Disasters,Hazard Risk Management
    Date: 2010–04–01
  3. By: Somporn Isvilanonda; Isriya Bunyasiri (Department of Agricultural and Resource Economics, Kasetsart University)
    Abstract: Agricultural development policy in Thailand over the past few decades has been geared not only to the nation’s food security, but also to export earnings. Thailand is a food surplus country at the macro level but food accessibility at the household level remains a problem, particularly in remote rural areas. The recent increase in food price and production cost has impacted on the rural poor. With a declining purchasing power, the poor households face the risk of food insecurity as they may reduce their intake of more nutritious food. The impact of rising food prices on agricultural households depends on whether they are net buyers of food commodities whose prices have increased. In rice farming households, the share of net buyer households was higher among households with smaller land holding. Also, the poor rice farmers in Thailand were severely affected by the higher production cost and input prices since the reduction in their net profits was larger. While nearly two-thirds of their operating cost was cash expense, they received only one-tenth from the rice sold. In order for the rural poor to cope with future impacts of high food price and rising production cost, a provision of off-farm employment and micro-credit with technical assistance and proper farm management plans should be targeted to small farmers and rural poor. In the longer-run, it is suggested that small-scale farmer capacity building and empowerment based on the sufficiency economy concept is necessary. This should be complemented by enhancing farm productivity through agricultural research and improvement in village-pool water resources including on-farm water resource management and investment.
    Keywords: Thailand, food security, agricultural policy, rural poor vulnerability, policy options
    JEL: O53 Q18
    Date: 2009–09

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