nep-mfd New Economics Papers
on Microfinance
Issue of 2010‒09‒25
seven papers chosen by
Olivier Dagnelie
Instituto de Analisis Economico, CSIC

  1. The Tsunami and the Chit Fund- Evidence from the Indian Ocean Tsunami Hit on Credit Demand in South India By Czura, Kristina; Klonner, Stefan
  2. Crop price indemnified loans for farmers By Karlan, Dean; Kutsoati, Ed; McMillan, Margaret; Udry, Chris
  3. Will microfinance continue to evolve into a mainstream asset class? Indications in favor and against By Kirchstein, Katja; Welvers, Kathleen
  4. What Explains Microfinance Distribution Surplus? A Stakeholder-oriented Approach By Anaïs Périlleux; Marek Hudon
  5. Financial Development and Household Welfare: Microevidence from Thai Households By Gloede, Oliver; Ornsiri Rungruxsirivorn
  6. Land reform and the formalization of houshold credit in rural Vietnam By Kemper, Niels; Klump, Rainer
  7. Optimal rainfall insurance contracts for maize producers in Ghana’s Northern Region By Muamba, Francis M.; Ulimwengu, John M.

  1. By: Czura, Kristina; Klonner, Stefan
    Abstract: We analyze the effects of the 2004 Indian Ocean Tsunami on credit demand in South India. Combining data from a semi-formal financial intermediary with geophysical data on the Tsunami, we estimate the extent to which the price of credit and the structure of credit flows changed in response to this shock. We find a significant increase in the interest rate by 5.3 per cent on average in the affected branches around the Tsunami. Interest rates increased most dramatically in the first three months after the Tsunami hit and decreased subsequently over the year 2005. We conclude that (i) funds provided by Roscas did play a role for coping with this huge negative shock, (ii) repercussions of the Tsunami in the Rosca credit market were limited in terms of the order of magnitude of effects, and (iii) semi-formal credit and official aid are substitutes as disaster coping mechanisms rather than complements. --
    Keywords: Roscas,Credit and Savings Associations,Rural Finance,Microfinance,Coping Strategies,Natural Disaster,Impact Evaluation
    Date: 2010
  2. By: Karlan, Dean; Kutsoati, Ed; McMillan, Margaret; Udry, Chris
    Abstract: Farmers face a particular set of risks that complicate the decision to borrow. We use a randomized experiment to investigate (1) the role of crop-price risk in reducing demand for credit among famers and (2) how risk mitigation changes farmers’ investment decisions. In rural Ghana, we offer farmers loans with an indemnity component that forgives 50 percent of the loan if crop prices drop below a threshold price. A control group is offered a standard loan product at the same interest rate. We find similar rates of loan uptake among all farmers and little significant impact of the indemnity component on uptake or other outcomes of interest, with the exception of higher likelihoods of garden egg cultivation and sales to market traders rather than at farmgate among recipients of indemnified loans.
    Keywords: agricultural credit, clustered randomized control trial, crop price insurance, crop prices, Impact evaluation, underinvestment,
    Date: 2010
  3. By: Kirchstein, Katja; Welvers, Kathleen
    Abstract: The microfinance sector has been going through profound changes in the last decades: It evolved from a donor-based community, driven by philanthropic objectives, to a high growth market that is today attracting commercial investors who seek social impact and a competitive risk-adjusted return. However, recent discussions in the sector about the assumed financial strength and resistance of microfinance institutions further triggered by the impact of the global economic and financial crisis on the microfinance sector as well as the increasing criticism about irresponsible business practices and limited impact on poverty reduction led to the question if the sector continues to evolve into a mainstream asset class. On the one hand the integration of microfinance institutions (MFI) into capital markets makes investments in the sector more attractive for mainstream investors, as the management of the investments turns more professional. On the other hand the correlation of the performance of MFIs with local and global market movements increases and makes diversification of an investor's portfolio less likely. --
    Keywords: Microfinance Investments Asset Class
    Date: 2010
  4. By: Anaïs Périlleux; Marek Hudon
    Abstract: What are the drivers of productivity surplus distribution to microfinance stakeholders? This paper shows that the size of the institution is the main indicator that can explain the gain in productivity surplus but also the surplus given to clients (decrease of interest rates) and staff. Moreover, cooperatives keep a significantly lesser part of their surplus for future growth, reserve, or distribution to investors. Finally, larger, more subsidised MFIs, and particularly cooperatives, tend to give a greater part of their surplus to their employees.
    Keywords: Microfinance; Surplus; Governance; Size; Subsidies; Cooperatives
    JEL: O16 O50 G21
    Date: 2010–09
  5. By: Gloede, Oliver; Ornsiri Rungruxsirivorn
    Abstract: We provide new micro evidence on the discussion about the relation- ship between financial development and welfare. Relying on the concept of local financial development our analysis focuses on three dimensions of household welfare: vulnerability to poverty, investment, and consumption smoothing. Even though we cannot find a significant effect on vulnerability, we provide evidence that financial development is correlated with higher investment and better possibilities to smooth consumption. The extent of both effects is also economically significant. Our results hold for alternative specifications and variations in the measurement of financial development. --
    Keywords: financial development,credit rationing,vulnerability,consumption smoothing,investment,poverty,growth
    JEL: O16 O17 G21
    Date: 2010
  6. By: Kemper, Niels; Klump, Rainer
    Abstract: This article evaluates the impact of land-use certificate (LUC) issuance on credit market outcomes of households in rural Vietnam. Given the absence of appropriate data for the creation of a baseline (e.g. for difference-in-difference estimation), we propose an alternative regression-based evaluation procedure hinging on two pivotal steps: Firstly, we express the covariates related to a change in LUC status in terms of the household specific economic, social and geographic environment at the time the change occurred. Secondly, we estimate the propensity score to account for systematic pretreatment differences between households in the observational data. Conditional on the propensity score, we estimate the causal effect of LUC status on borrowing outcomes. We find that LUCs have a strong positive effect on formal borrowing, while households without LUCs collect loans in the informal credit sector. --
    Keywords: Credit,consistency,land reform,program evaluation,Vietnam
    JEL: O16 C13
    Date: 2010
  7. By: Muamba, Francis M.; Ulimwengu, John M.
    Abstract: The risk of food insecurity due to climate change in developing countries has encouraged development partners to seek new approaches to improve the resilience of subsistence agriculture to covariate shocks. Such innovative approaches include investment in safety nets such as rainfall insurance. However, a policy question remains: How does one determine the practicality of rainfall insurance for a particular district? This paper attempts to fill this gap by assessing the viability of rainfall insurance contracts for agricultural production in Ghana’s Northern Region. Using a stop-loss framework, an optimal contract is determined by choosing its parameters by maximizing the objective function in the form of covariance between crop loss and indemnity payment, the objective function given a predetermined fair premium rate. The theoretical contract is implemented using monthly rainfall and annual maize crop yield data from 1998 to 2004 from 12 districts in the Northern Region under varying premium rates. We conclude that rainfall insurance may not be viable for all districts in the Northern Region; however, the contracts are likely to be viable in districts that exhibit a positive Pearson correlation coefficient between maize yield loss and indemnity payments.
    Keywords: Climate change, maize yield, rainfall insurance,
    Date: 2010

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