nep-mfd New Economics Papers
on Microfinance
Issue of 2010‒12‒23
five papers chosen by
Olivier Dagnelie
Instituto de Analisis Economico, CSIC

  1. Do Multiple Financial Services Enhance the Poverty Outreach of Microfinance Institutions? By Koen Rossel-Cambier
  2. Some preliminary but troubling evidence on group credits in microfinance programmes By Helke Waelde
  3. Capital Markets- Utility for Micro-finance By Dash, Debasis Kumar
  4. Economic governance of MFIs:Inside the black box By Thankom Arun; Samuel Annim
  5. Role of rural business incubators in translating micro finance to sustainable micro enterprises By Koshy, Perumal

  1. By: Koen Rossel-Cambier
    Abstract: Documented deficiencies in traditional social transfer mechanisms have led to the emergence of alternative methods for reducing poverty. In many countries, microfinance institutions (MFIs) have become popular instruments for redistributive pro-poor policies. While microcredit programmes have undoubtedly improved the lives of millions of poor households, they are also criticised for not being inclusive enough to reach out to the poor and their specific needs. This paper explores if the current trend towards product diversification can be an appropriate policy response for enhanced poverty outreach, in particular when combining micro-credit with savings and insurance. By reviewing cross-sectional evidence of 250 microfinance schemes in Latin America and the Caribbean,one canfind positive effects of combined microfinance (CMF) on the breadth of outreach. Still, the contribution of CMF on the depth of poverty outreach is less evident, both viewed from an income-related and gender-sensitive lens. The findings suggest that the presence of savings is accompanied with a relatively lower participation of poor and female clients. Practitioners and policy makers –when designing CMF- must ensure that pragmatic mechanisms are in place to ensure that the neediest are reached.
    Keywords: microfinance; combined microfinance; microinsurance; microcredit; microsavings; poverty; social inclusion
    JEL: C12 G21 G22 L31 O54
    Date: 2010–12
  2. By: Helke Waelde (Department of Economics, Johannes Gutenberg-Universitaet Mainz, Germany)
    Abstract: Group lending programs are said to be the key factor of success of microÂ…nance. They are said to reduce information asymmetries in credit contracts and to increase repayment rates. Despite that, in recent years more and more individual credits without collateral are given, even if there is no mutual monitoring of the borrowers. We use basic descriptive statistics on individual- and group panel data, which we construct out of a World Bank data set. We provide Â…rst evidence that individuals that are not participating in group credits accumulate wealth more quickly than participants of group credit programs.
    JEL: E43 E52 E58 D44
    Date: 2010–12–07
  3. By: Dash, Debasis Kumar
    Abstract: The Paper deals with the situation for efficient use of Capital Markets for financing Micro-finance Institutions. In order to sustain the growth in the microfinance industry, it is necessary to shifting the loan financing for MFIs from traditional lenders to capital markets. This can primarily be achieved through securitization and CDOs. Both have different advantages to offer which can be tapped separately and also customized on a case‐by‐case basis. Apart from the domestic commercial investors, foreign market debt can also be tapped for the funding needs of the MFIs but for that to function properly, the FXR has to be managed which can be effectively done through the creation of a “global local currency fund” which basically works on the principle of diversification.
    Keywords: Micro-Finance; Capital Markets; Securitization; Tranching
    JEL: G21
    Date: 2010–11–30
  4. By: Thankom Arun; Samuel Annim
    Abstract: This paper investigates a relationship between economic governance and the dual objectives of microfinance institutions (MFIs): poverty reduction and financial viability. Using an unbalanced panel of 531 MFIs, the important role of other institutions, such as country-level business registry departments, in facilitating targeting of poor clients is illuminated. Comparing the estimates of Hausman-Taylor and Fixed Effects Vector Decomposition allows us to scrutinise and at least partially correct the effects of both time invariant and slow changing endogenous variables. We find that credit information availability and lesser time in securing property enhances the chances of MFIs in achieving their poverty reduction objective. Product diversification, leading to economies of scope, also enables MFIs to reach poor clients. On the basis of the above, it is imperative for government and development partners to channel their efforts towards provision of an enabling atmosphere that will enhance the achievement of microfinance social objectives.
    Date: 2010
  5. By: Koshy, Perumal
    Abstract: Present paper looks at how Rural Business Incubators (RBIs) & Enterprise Resource Centers (ERCs) together with Micro Finance Institutions (MFIs) can contribute to inclusive growth. India’s informal sector has a very powerful presence of brilliant entrepreneurs, who can potentially contribute to India’s fight against poverty and have the potential for much more employment & income generation, if appropriate institutional mechanisms are created to provide needed & timely assistance. Here comes the role of RBIs & ERCs and MFIs. Approximately 93 percent of the enterprises are in the informal sector in India. Together with Micro, Small & Medium Enterprises (MSMEs), informal sector contributes close to 60 percent to GDP and 40 percent or more to export trade. They create 95 percent of non-farm jobs. Informal enterprises are set-up by owners to alleviate their poverty condition. They could be termed as poverty alleviating enterprises (PAEs). Micro finance institutions need to reach out to such PAEs and empower them. Through the institutional mechanism called RBIs & ERCs, micro financiers can reach out to PAEs. Empowering PAEs and enabling their growth is indeed a challenging task. An institutional mechanism like RBI & ERC is a probable solution to poverty and unemployment. If an incubator & ERC can come up in each of the 6000 block panchayats, that would enable the creation of new enterprises in the formal sector as well as can contribute to empower PAEs in their growth & expansion. This would help create new jobs and alleviate poverty and generate employment. The paper ends with a model RBI & ERC. with a detailed description of service mix that can be delivered through this institutional mechanism.
    Keywords: Micro; Small and Medium Enterprises(MSMEs); Rural Business Incubutors; Poverty Alleviation; Employment Generation; Rural Transformation; Information Needs of MSMEs
    JEL: R58 N25 E26
    Date: 2010–12–10

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