nep-mfd New Economics Papers
on Microfinance
Issue of 2010‒12‒04
two papers chosen by
Olivier Dagnelie
Instituto de Analisis Economico, CSIC

  1. Diversion of loan use: who diverts and why? By Khaleque, Abdul
  2. The binding constraint on firms'growth in developing countries By T. Dinh, Hinh; Mavridis, Dimitris A.; Nguyen, Hoa B.

  1. By: Khaleque, Abdul
    Abstract: This paper uses 2973 loan profile records of 2810 poor households who have taken these loans from different quasi-formal sources of which about 50 percent of the loan taken is supplied by the Ultra-poor oriented program designed by PKSF. The objective of this program was to create some income source for these Ultra-poor through credit support. But diversion of loan use from the proposed IGA to other non-productive sector, especially to consumption hinders the objects and at the same time causes a threat to the MFIs as some of them become default. We observe that among these Ultra-poor households who have taken loan, about 68 percent of the loan was diverted from the proposed IGA to other activity with different degree of diversion and of these diverted loan, 40 percent was fully diverted. We find that among the non-savers, wage employers, inhabitants of char have higher likelihood of diverting their received loan from the proposed IGA to others and more than 28 percent of each loan on average was used for consumption.
    Keywords: Credit; Diversion; Default; Fund; IGA; Index; Loan; Microfinance
    JEL: D11 D12 R20
    Date: 2010–11–15
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:26930&r=mfd
  2. By: T. Dinh, Hinh; Mavridis, Dimitris A.; Nguyen, Hoa B.
    Abstract: Firms in developing countries face numerous and serious constraints on their growth, ranging from corruption to lack of infrastructure to inability to access finance. Countries lack the resources to remove all the constraints at once and so would be better off removing the most binding one first. This paper uses data from World Bank Enterprise Surveys in 2006-10 to identify the most binding constraints on firm operations in developing countries. While each country faces a different set of constraints, these constraints also vary by firm characteristics, especially firm size. Across all countries, access to finance is among the most binding constraints; other obstacles appear to matter much less. This result is robust for all regions. Smaller firms must rely more on their own funds to invest and would grow significantly faster if they had greater access to external funds. As a result, a low level of financial development skews the firm size distribution by increasing the relative share of small firms. The results suggest that financing constraints play a significant part in explaining the"missing middle"-- the failure of small firms in developing countries to grow into medium-size or large firms.
    Keywords: Access to Finance,Environmental Economics&Policies,Microfinance,Debt Markets,Banks&Banking Reform
    Date: 2010–11–01
    URL: http://d.repec.org/n?u=RePEc:wbk:wbrwps:5485&r=mfd

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