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on Microfinance |
| By: | Abdul Karim, Zulkefly |
| Abstract: | Since the establishment of Grameen Bank in 1976 by Professor Muhammad Yunus , many economists have studied extensively, either theoretically or empirically, the success of the Grameen Bank in eradicating the poverty problem in Bangladesh. Therefore, this paper aims to apply the mechanism design theory in microfinance by examining the role of joint liability and cross-reporting mechanism in the loan contract which designing by microfinance lender. In doing so, this study simplified the joint liability mechanism proposed by Ghatak (1999, 2000) and cross-reporting mechanism by Rai and Sjostrom (2004). Based on the joint-liability mechanism, it is clearly stated that the microfinance lender can minimize or avoid the adverse selection problem in the credit market through peer selection and peer screening. In the meantime, the joint liability mechanism is better than individual lending in terms of increasing the social welfare among the poor borrower, charging lower interest rates and generating high repayment rates. In contrast, Rai and Sjostrom (2004) argue that joint liability alone is not enough to efficiently induce borrowers to help each other. Indeed, the cross-reporting mechanism is also important for lenders in order to minimize the problem of asymmetric information in the credit market. The cross-reporting mechanism is also efficient because it can influence the borrower to be truthful-telling about the state of the project and subsequently can minimize the deadweight loss (punishment) among the borrowers. In comparison, without cross-reporting, the lending mechanism is inefficient because the borrower will be imposed harsh punishment from the bank and the bank can undertake auditing or verify the state of the project and punish accordingly. |
| Keywords: | Microfinance; mechanism design; joint liability; cross-reporting |
| JEL: | B21 N20 C70 |
| Date: | 2009–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23934&r=mfd |
| By: | Jeffrey Carpenter; Tyler Williams |
| Abstract: | Given the substantial amount of resources currently invested in microcredit programs, it is more important than ever to accurately assess the extent to which peer monitoring by borrowers faced with group liability contracts actually reduces moral hazard. We conduct a field experiment with women about to enter a group loan program in Paraguay and then gather administrative data on the members' repayment behavior in the six-month period following the experiment. In addition to the experiment which is designed to measure individual propensities to monitor under incentives similar to group liability, we collect a variety of the other potential correlates of borrowing behavior and repayment. Controlling for other factors, we find a very strong causal relationship between the monitoring propensity of one's loan group and repayment. Our lowest estimate suggests that borrowers in groups with above median monitoring are 36 percent less likely to have a problem repaying their portion of the loan. Besides confirming a number of previous results, we also find some evidence that risk preferences, social preferences, and cognitive skills affect repayment. |
| Keywords: | Loans ; Credit ; Human behavior |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:10-6&r=mfd |
| By: | Shardul Agrawala (OECD Environment Directorate); Maëlis Carraro (OECD Environment Directorate) |
| Abstract: | Much of the current policy debate on adaptation to climate change has focussed on estimation of adaptation costs, ways to raise and to scale-up funding for adaptation, and the design of the international institutional architecture for adaptation financing. There is however little or no emphasis so far on actual delivery mechanisms to channel these resources at the sub-national level, particularly to target the poor who are also often the most vulnerable to the impacts of climate change. It is in this context that microfinance merits a closer look. This paper offers the first empirical assessment of the linkages between microfinance supported activities and adaptation to climate change. Specifically, the lending portfolios of the 22 leading microfinance institutions in two climate vulnerable countries – Bangladesh and Nepal - are analysed to assess the synergies and potential conflicts between microfinance and adaptation. The two countries had also been previously examined as part of an earlier OECD report on the links between macro-level Official Development Assistance and adaptation. This analysis provides a complementary “bottom-up” perspective on financing for adaptation. Insights from this analysis also have implications for OECD countries. This is because microfinance is also being increasingly tapped to reduce the vulnerability of the poor in domestic OECD contexts as well and may therefore have the potential to contribute to adaptation. The paper identifies areas of opportunity where microfinance could be harnessed to play a greater role in fostering adaptation, as well as its limitations in this context. It also explores the linkage between the top-down macro-financing for adaptation through international financial mechanisms and the bottom-up activities that can be implemented through microfinance. |
| Keywords: | Microfinance, Climate Change, Financing, Adaptation, Bangladesh, Nepal |
| JEL: | Q56 Q54 R51 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2010.82&r=mfd |
| By: | Dean Karlan (Economics Department, Yale University); Margaret McConnell (Center for Population and Development Studies, Harvard University); Sendhil Mullainathan (Department of Economics, Harvard University); Jonathan Zinman (Department of Economics, Dartmouth College) |
| Abstract: | We develop and test a simple model of limited attention in intertemporal choice. The model posits that individuals fully attend to consumption in all periods but fail to attend to some future lumpy expenditure opportunities. This asymmetry generates some predictions that overlap with models of present-bias. Our model also generates the unique predictions that reminders may increase saving, and that reminders will be more effective when they increase the salience of a specific expenditure. We find support for these predictions in three field experiments that randomly assign reminders to new savings account holders. |
| Keywords: | intertemporal consumer choice, savings, attention |
| JEL: | D91 E21 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:egc:wpaper:988&r=mfd |