nep-mfd New Economics Papers
on Microfinance
Issue of 2011‒01‒03
six papers chosen by
Olivier Dagnelie
Instituto de Analisis Economico, CSIC

  1. Microfinance ‘Plus’: The Impact of Business Training on Indian Self Help Groups By Bali Swain, Ranjula; Varghese, Adel
  2. Can combining credit with insurance or savings enhance the sustainability of microfinance institutions? By Koen Rossel-Cambier
  3. Being Patient with Microfinance: The Impact of Training on Indian Self Help Groups By Bali Swain, Ranjula; Varghese, Adel
  4. Reducing Vulnerability through Microfinance: Evidence from Indian Self Help Group Program By Bali Swain, Ranjula; Floro, Maria
  5. What determines credit participation and credit constraints of the poor in peri-urban areas, Vietnam? By Doan, Tinh; Gibson, John; Holmes, Mark
  6. A dynamic model of unsecured credit By Daniel R. Sanches

  1. By: Bali Swain, Ranjula (Department of Economics); Varghese, Adel (Department of Economics, Texas A & M University)
    Abstract: The provision of business training with microfinance leads to a positive impact on assets for the participating households. We correct for membership selection bias and account for potential training endogeneity with propensity score matching, using data from the Self Help Group microfinance program in India.
    Keywords: India; microfinance; business training; impact studies; Self Help Groups
    JEL: G21 I32 O12
    Date: 2010–12–10
  2. By: Koen Rossel-Cambier
    Abstract: Worldwide, microcredit organizations are gradually transforming to multi-servicing organizations offering additional financial services. This paper examines whether combining microcredit with insurance and/or savings enhances their economic performance by increasing their efficiency, productivity, sustainability or portfolio quality indicators. Using cross-sectional data from 250 microfinance institutions (MFIs) from Latin America and the Caribbean, it compares MFIs offering credit only with those combining credit with respectively savings and insurance. By using multiple regression analysis, this research finds positive effects of both savings and insurance on the efficiency and productivity of MFIs. Still, this research didn't find significant results with relation to the sustainability and portfolio quality of MFIs. Overall, taking into account various risks, combined microfinance can enhance organisational efficiency and productivity because of the different economies of scope which can be achieved. This reveals especially for large and mature MFIs which already exhibit readiness in terms of human, financial, and organizational resources to deal with the complexity of delivering multiple financial services.
    Keywords: performance; microfinance; combined microfinance; microinsurance; microcredit; microsavings; Latin America and the Caribbean
    JEL: G21 G22 L31 O54
    Date: 2010–12
  3. By: Bali Swain, Ranjula (Department of Economics); Varghese, Adel (Texas A & M University)
    Abstract: We evaluate the impact of training provided by facilitators of Self Help Groups (SHGs). This evaluation provides one of the first studies of the impact of ‘microfinance plus,’ or the disbursement of services beyond credit. Indian SHGs are mainly NGO-formed microfinance groups but funded by commercial banks. We correct for membership selection bias with data on current as well as future SHG members. We then account for potential training endogeneity with propensity score matching. Regression and unadjusted matching results indicate that training does not aid in asset accumulation but can reverse the negative impact of credit on income. However, regression adjusted matching which controls for both participation and training selection bias reveals that training impacts assets but not income. These results are robust to sensitivity analyses performed on these estimates.
    Keywords: India; microfinance; training; impact studies; Self Help Groups
    JEL: I32 O12
    Date: 2010–12–10
  4. By: Bali Swain, Ranjula (Department of Economics); Floro, Maria (Department of Economics, American University)
    Abstract: We investigate if participation in Indian Self Help Group microfinance program (SHG) results in reducing vulnerability. Vulnerability estimates are constructed using cross-sectional SHG rural household survey data, collected in 2003. The potential selection bias is eliminated by propensity score matching to estimate the average treatment on treated effect using nearest neighbour matching and local linear regression algorithm. We find that despite a disproportionately high percentage of poor in the SHG members, vulnerability is not significantly different between the SHG and non-SHG members. This result is found to be robust using sensitivity analysis and Rosenbaum bounds method.
    Keywords: Microfinance; Vulnerability; Poverty; Self Help Groups
    JEL: D14 G21 I32
    Date: 2010–12–10
  5. By: Doan, Tinh; Gibson, John; Holmes, Mark
    Abstract: This paper uses a novel dataset collected by the first author from peri-urban areas of Ho Chi Minh City, Vietnam in 2008 to examine how the poor use their loans, and factors affecting their credit participation and credit constraints. The paper finds the presence of many commercial banks in the areas does not help the poor, but the poor rely heavily on informal credit. Loans in the peri-urban areas are mainly used for non-productive purposes, which stresses the importance of consumption smoothing motives. Further, households in more rural wards have a higher probability of borrowing than more urban households, thanks to better community relationships and higher interpersonal trust. Competition by borrowing neighbours adversely affects the opportunity for borrowing in urban wards where the poor households’ borrowings rely much more on subsidized credit funds. A closer look at specified microcredit sources reveals that household behaviours differ in each market segment. Furthermore, the poor are highly credit-constrained. Wealthier households, in terms of asset holdings and phone possession, among the poor group appear less credit-constrained. However, except in the most rural part of the study area, the likelihood of credit constraints increases with distance to the nearest banks, which suggests that supply-side intervention could help in overcoming credit constraints. Overall, the poor in urban wards are more credit-constrained because of exclusion by commercial banks and weak interpersonal trust.
    Keywords: Credit participation; credit constraints; the poor; peri-urban; Vietnam
    JEL: R22 C24 H81 C25
    Date: 2010–12–10
  6. By: Daniel R. Sanches
    Abstract: The author studies the terms of credit in a competitive market in which sellers (lenders) are willing to repeatedly finance the purchases of buyers (borrowers) by engaging in a credit relationship. The key frictions are: (i) the lender is unable to observe the borrower's ability to repay a loan; (ii) the borrower cannot commit to any long-term contract; (iii) it is costly for the lender to contact a borrower and to walk away from a contract; and (iv) transactions within each credit relationship are not publicly observable. The lender's optimal contract has two key properties: delayed settlement and debt forgiveness. Asymmetric information gives rise to the property of delayed settlement, which is a contingency in which the lender allows the borrower to defer the repayment of his loan in exchange for more favorable terms of credit within the relationship. This property, together with the borrowers' lack of commitment, gives rise to debt forgiveness. When the borrower's participation constraint binds, the lender needs to "forgive" part of the borrower's debt to keep him in the relationship. Finally, the author studies the impact of the changes in the initial cost of lending on the terms of credit.
    Keywords: Credit ; Contracts
    Date: 2010

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