New Economics Papers
on Microfinance
Issue of 2011‒03‒26
six papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Can Microcredit and Job Under NREGS Jointly Bring More Happiness to the Villagers? By Kundu, AMIT
  2. To switch or not to switch - Can individual lending do better in micronance than group lending? By Helke Waelde
  3. The Impact of Microfinance on the Informal Credit Market: an Adverse Selection Model By Timothée Demont
  4. Microfinance Impact Evaluation: A Managerial Perspective By Yadav, Manoj K
  5. Why Do African Banks Lend so Little? By Svetlana Andrianova; Badi H. Baltagi; Panicos O. Demetriades; David Fielding
  6. Housing Policies in China: Issues and Options By Zenou, Yves

  1. By: Kundu, AMIT
    Abstract: This paper aims to investigate whether access to microfinance loan and job under National Rural Employment Guarantee Scheme (NREGS) have any significant impact to bring life satisfaction as well as happiness, an important well-being indicator to the villagers of West Bengal. Here we consider microfinance system under individual liability loan contract and joint liability loan contract separately. This paper shows participation in microfinance programme, size of microcredit and more number of man-days of getting job under NREGS bring more happiness to the village people. It is also established that members of Self-Help Group under SGSY scheme become happier in compare to members of VSSU a microfinance system operating on the basis of individual liability loan contract. This is because most of the members under SGSY scheme are women and that of VSSU are men and the members of Self-Help Group under SGSY scheme have become much more empowered after joining the microfinance programme through forming Self-Help Group.
    Keywords: Microfinance; Individual Liability; Joint Liability; NREGS; Impact Study; Happiness
    JEL: G21
    Date: 2010–06–10
  2. By: Helke Waelde (Department of Economics, Johannes Gutenberg-Universitaet Mainz, Germany)
    Abstract: These days it has been witnessed, that banks o¤er individual loans instead of group loans and develop products based on individual liability in developing coun- tries. In order to study this surprising turn, we expand the conventional approach on decision making of individuals. A social prestige function is introduced that re- ‡ects the non-monetary impacts of group membership on the individual and on her decisions. If a borrower possesses more than a critical level of wealth, it is optimal for her to switch to individual borrowing. From a welfare perspective, a mixture of individual and group loans is desirable. However, the average borrower switches from group to individual lending too soon.
    JEL: E43 E52 E58 D44
    Date: 2011–03–07
  3. By: Timothée Demont (Center for Research in the Economics of Development, University of Namur)
    Abstract: This paper looks at ‘the other side’ of the much-celebrated microfinance revolution, namely its potential impact on the conditions of access to credit for nonmembers (the residual market). It uses a standard adverse selection framework to show the advantage of group lending as a single innovative lending technology, and then to assess how the apparition of this new type of lenders might change the equilibria on rural credit markets, taking into account the reaction of other lenders. We find that two antagonist effects coexist: a standard competition effect and a selection effect. While the former tends to lower the residual market rate, the latter raises the cost of borrowing outside microfinance institutions (MFIs) due to a worsening of the pool of borrowers. The relative weights of the two effects depend on the market structure, the heterogeneity of the population and the actual distance between lending technologies. If the individuallending market is competitive, then the only possible effect is the increase of the interest rate charged by moneylenders, which will happen as soon as the pool of borrowers of the two types of lenders are overlapping. If traditional moneylenders have market power, then the two effects are at work. Even then, whenever a group-lending institution is present in the market, a monopolistic moneylender has to give up supplying credit to relatively safe borrowers, which can allow it to raise its interest rate (though making a lower profit). This arguably less intuitive impact of microfinance, which has been overlooked until now, is important given the nearly-universal coexistence of MFIs and traditional lenders in developing countries. Moreover, it is not only theoretically likely, but seems to match some empirical evidence presented in the paper. Our paper is thus a contribution in the understanding of the redistributive impact of the microfinance revolution that has been occurring in the last years.
    Keywords: Microfinance, Rural credit market, Adverse selection, Group lending, Competition.
    JEL: D82 G21 L1 O12 O16
    Date: 2010–03
  4. By: Yadav, Manoj K
    Abstract: The objective of this concept note was to introduce Impact Evaluation and highlight its need and importance during these turbulent times. As it turns out that Impact Evaluation holds promise to a host of benefits to the MFIs ranging from consumer insights to launching of new products and services and from better reporting standards to performance measurement. It will gain further prominence in coming days as focus of various stakeholders undergoes drastic shift towards social performance and understanding the consumer behavior. Not only it will be a strategic exercise but it will be adopted as a risk mitigation tool for identifying loopholes and appropriate measures to plug them.
    Keywords: Microfinance; Impact Evaluation;
    JEL: I30
    Date: 2011–01–31
  5. By: Svetlana Andrianova; Badi H. Baltagi; Panicos O. Demetriades; David Fielding
    Abstract: We put forward a plausible explanation of African financial under-development in the form of a bad credit market equilibrium. Utilising an appropriately modified IO model of banking, we show that the root of the problem could be unchecked moral hazard (strategic loan defaults) or adverse selection (a lack of good projects). Applying a dynamic panel estimator to a large sample of African banks, we show that loan defaults are a major factor inhibiting bank lending when the quality of regulation is poor. We also find that once a threshold level of regulatory quality has been reached, improvements in the default rate or regulatory quality do not matter, providing support for our theoretical predictions.
    Keywords: Dynamic panel data; African financial under-development; African credit markets
    JEL: G21 O16
    Date: 2011–03
  6. By: Zenou, Yves (Stockholm University)
    Abstract: This article consists in three parts. The first part deals with theory. We evaluate the pros and cons of government involvement in urban housing and of renting versus ownership. In the second part, we summarize the different housing policies that have been implemented in the United States, Europe, and Asia. We draw some conclusions. In particular, we show that there is a tradeoff between encouraging home ownership and social housing since countries that have favor the former have neglected the latter (like Japan, Spain, etc.). In the third part, we use the theory and the international policy parts to address housing policy issues in China. One of the main concerns in Chinese cities is the raise of poverty mainly by "illegal" migrants (who are Chinese rural residents) living in "urban villages". We propose two steps to fight against poverty in Chinese cities. The first one is to require that the Chinese government recognizes these "illegal" migrants by helping them becoming "legal". The second step is to encourage social housing that directly or indirectly subsidizes housing for the poor. In that case, to fight against poverty, one can either implement place-targeted policies (like the enterprise zone programs in the US and Europe and/or housing projects in the US, UK, or France) or people-targeted policies (like the MTO programs in the US). We also discuss other issues related to poverty. In particular, we suggest that the government could also try to keep migrants in rural areas by attracting firms there and/or introduce a microfinance system that helps them become entrepreneurs.
    Keywords: urban villages, social housing, poverty, place-targeted policies, people-targeted policies, China
    JEL: H5 O53
    Date: 2011–02

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