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on Microfinance |
| By: | Marek Hudon; Joakim Sandberg |
| Abstract: | One of the most salient ethical debates concerning microcredit pertains to the unexpectedly high rates of interest charged on microloans. Microcredit is supposed to be to the advantage of borrowers in some of the poorest regions of the world, but at the same time commercial institutions need to cover their comparably high costs. This article seeks to find a theoretical basis for a more balanced way of setting prices on microcredit; i.e. a theory of fairness in interest rates. By drawing on both contemporary debates in the industry as well as more general philosophical ideas, the article discusses four main theoretical approaches. In the end the authors favour a combination of consequentialism and liberal egalitarianism which seems able to adequately balance the needs of the institutions with the needs of the clients. However it is also acknowledged that further research in the area is needed. |
| Keywords: | justice; microfinance; interest rate; usury |
| JEL: | L31 M54 O16 Q14 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/88905&r=mfd |
| By: | Kedir, Abbi M. (University of Leicester); Disney, Richard (University of Nottingham); Dasgupta, Indraneel (Centre for Studies in Social Sciences, Calcutta) |
| Abstract: | Much of the existing literature on the use of informal credit arrangements such as ROSCAs (Rotating and Credit Saving Associations) theorises the use of such institutions as arising from market failures in the development of formal saving and credit mechanisms. As economic development proceeds, formal institutions might therefore be expected to displace ROSCAs. We show, using household data for Ethiopia, that in fact use of formal institutions and ROSCAs can co-exist, even in the same household. We examine usage of both formal and informal institutions across the household income gradient, and provide a theoretical model consistent with these empirical facts. |
| Keywords: | household saving, credit institutions, ROSCAs, Ethiopia |
| JEL: | O16 O17 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5767&r=mfd |
| By: | Isaac Mbiti; David N. Weil |
| Abstract: | M-Pesa is a mobile phone based money transfer system in Kenya which grew at a blistering pace following its inception in 2007. We examine how M-Pesa is used as well as its economic impacts. Analyzing data from two waves of individual data on financial access in Kenya, we find that increased use of M-Pesa lowers the propensity of people to use informal savings mechanisms such as ROSCAS, but raises the probability of their being banked. Using aggregate data, we calculate the velocity of M-Pesa at between 11.0 and 14.6 person-to-person transfers per month. In addition, we find that M-Pesa causes decreases in the prices of competing money transfer services such as Western Union. While we find little evidence that people use their M-Pesa accounts as a place to store wealth, our results suggest that M-Pesa improves individual outcomes by promoting banking and increasing transfers. |
| JEL: | E40 O16 O33 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17129&r=mfd |
| By: | Vincent Somville (Center for Research in the Economics of Development, University of Namur) |
| Abstract: | Daily collectors operate worldwide; they charge a fee in exchange for the collection of their client's deposits. The clients recover their savings after one month. With a negative nominal return of -3.3% per month, the service is quite expensive but nonetheless prevalent among the very poor. The economic literature so far emphasizes two motives for making deposits: (i) it is safer than bringing the money home, (ii) people want to commit to save. I argue that in addition to these two motives, people make deposits in order to reduce their contribution to the household's expenses and increase their private consumption. This intra-household motive is first modelled and then tested using a unique panel data set collected in Benin. The panel structure of the data allows me to isolate the effect of the third motive. Additionally, I show that daily collectors enable women to make more gifts to their children and acquaintances, and allow men to reduce those gifts and their participation to household's public goods. There is large positive effect of the deposits on people's purchase of new clothes, and making deposits increases women's expenditures on frivolous goods by 200% to 300%. Finally, the commitment motive appears to be an important determinant of men's deposits. |
| Keywords: | Intra-household, deposit collectors, micro-savings, non-cooperative household's members, public good provision, commitment |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:nam:wpaper:1106&r=mfd |