New Economics Papers
on Microfinance
Issue of 2011‒08‒02
seven papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Estimating the depth of microfinance programme outreach: empirical findings from rural Pakistan By Asad K. Ghalib
  2. The microfinance of reproduction and the reproduction of microfinance: understanding the connections between microfinance, empowerment, contraception and fertility in Bangladesh in the 1990s. By Duvendack, Maren; Palmer-Jones, Richard
  3. Microfinance: Champion in Poverty Alleviation and Failure in Female Empowerment By Dobra, Alexandra
  4. What’s wrong and right with microfinance – missing an angle on responsible finance? By David Hulme; Thankom Arun
  5. Adoption of weather index insurance: Learning from willingness to pay among a panel of households in rural Ethiopia By Hill, Ruth Vargas; Hoddinott, John; Kumar, Neha
  6. Flexible insurance for heterogeneous farmers: Results from a small-scale pilot in Ethiopia By Hill, Ruth Vargas; Robles, Miguel
  7. Beyond fatalism: An empirical exploration of self-efficacy and aspirations failure in Ethiopia By Bernard, Tanguy; Dercon, Stefan; Taffesse, Alemayehu Seyoum

  1. By: Asad K. Ghalib
    Abstract: Microfinance has emerged on the global scale as a key strategy to reduce poverty and promote development. Most of the relevant literature, however, tends to concentrate on breadth as opposed to depth of programme outreach. This paper is based on a primary household survey of 1,132 respondents in the Punjab Province of Pakistan to assess which category of the poor is being served by microfinance institutions. Are they the very poor, middle poor or less poor households? In order to make comparisons, borrower (treatment) and non-borrower (control) households are interviewed and, by employing Principal Component Analysis (PCA), each household is allocated a specific poverty score in relation to all other households in the sample. Once the poverty index is obtained, sampled households are ranked in order of varying poverty levels. Comparisons are later made between borrower and non-borrower households to estimate programme outreach. The paper concludes with findings that the depth of poverty outreach is significantly lower than what has been hitherto proclaimed by service providers and reflects on policy implications to enhance depth (as opposed to breadth) of programme outreach to address the needs of the poorest of the poor, in order to contribute meaningfully and effectively towards combating poverty.
    Date: 2011
  2. By: Duvendack, Maren; Palmer-Jones, Richard
    Abstract: Microfinance (MF) and family planning (FP) are thought to be very important interventions in the promotion of human development and it has been suggested that MF has significant beneficent impacts on contraceptive adoption and fertility. Thus, several authors, e.g. Amin, Hill and Li (1995), Amin et al (1994 and 2001); Schuler, Hashemi and Riley (1997); Hashemi, Schuler and Riley (1996); Schuler and Hashemi (1994), using naive methods find that MF in Bangladesh increases contraceptive use and reduces fertility at the individual level, largely because MF empowers women. Pitt et al (1999 – henceforth PKML), however, using instrumental variables (IV) estimation find that MF is associated with decreases in contraceptive use especially when females borrow, and male borrowing decreases fertility, perhaps because fertility increasing income effects of MF outweigh substitution. Steele et al (2001), also using data from Bangladesh from around the same time as the PKML study, come to conclusions closer to the orthodoxy, arguing that PKML use an inappropriate metric for MF programme participation. In this paper we apply matching methods to our reconstruction of the PKML data to test whether other methods reproduce their results. We find that female borrowing substantially increases contraceptive use but has mainly no effects on fertility, while male borrowing has no effect on contraceptive use or on fertility; this contradicts some of the findings of PKML. Our results are shown to be vulnerable to unobservables, but there is no reason to believe that results on IV based methods are more reliable.
    Keywords: Microfinance; family planning; propensity score matching; Bangladesh
    JEL: J13 O10 O16 O12
    Date: 2011–06
  3. By: Dobra, Alexandra
    Abstract: In the past few years the provision of financial services to low-income clients via microfinance programs has drastically increased due to its positive effects on development. There are plenty of policy concerns surrounding the triad of microfinance, poverty reduction, and female empowerment. Microfinance programs provide an effective and operational policy tool which is successful in reducing poverty »holistically,« in the sense that women tend to share their income with others more than men. However, the rigidity of microfinance programs does little to enhance female political empowerment. Thus, it is important to go beyond the mainly economics-centred literature and to draw on examples from less developed countries and to propose ways of overcoming the programs’ weaknesses. As a result, a positive correlation between targeting women with microfinance programs has to be found that consistently decreases overall poverty.
    Keywords: Microfinance ; Empowerment ; Limits ; Targeting
    JEL: B21 D63 A14
    Date: 2011–07–01
  4. By: David Hulme; Thankom Arun
    Abstract: Microfinance as the best way of tackling poverty is under attack. It has been accused of failing to help the poor, of treating its clients badly, of charging high interest rates and of encouraging poor people to take on excessive debt burdens. The authors examine these issues, and find that microfinance institutions (MFIs) can have significant positive impacts, including democratisation of banking services, provision of secure savings facilities for poor people, and social benefits, particularly for women. The paper looks at the way forward for microfinance, suggesting some changes that need to be implemented by MFIs, banking authorities and governments.
    Date: 2011
  5. By: Hill, Ruth Vargas; Hoddinott, John; Kumar, Neha
    Abstract: In this paper we examine which farmers would be early entrants into weather index insurance markets in Ethiopia, were such markets to develop on a large scale. We do this by examining the determinants of willingness to pay for weather insurance among 1,400 Ethiopian households that have been tracked for 15 years as part of the Ethiopia Rural Household Survey. This provides both historical and current information with which to assess the determinants of demand. We find that educated, rich, and proactive individuals were more likely to purchase insurance. Risk aversion was associated with low insurance take-up, suggesting that models of technology adoption can inform the purchase and spread of weather index insurance. We also assess how willingness to pay varied as two key characteristics of the contract were varied and find that basis risk reduced demand for insurance, particularly when the price of the contract was high, and that provision of insurance through groups was preferred by women and individuals with lower levels of education.
    Keywords: index-insurance, Risk, Willingness to pay (WTP),
    Date: 2011
  6. By: Hill, Ruth Vargas; Robles, Miguel
    Abstract: We analyze the effectiveness of a new approach in providing weather index–based insurance products to low-income populations. The approach is based on the concept of providing multiple weather securities that pay a fixed amount if the event written on the security (that monthly rainfall at a nearby weather station falls below a stated cutoff) comes true. A theoretical model is developed to outline the conditions in which weather securities could outperform crop-specific weather index–based insurance policies. Data collected during both an experimental game and real purchases of such insurance policies among farmers in southern Ethiopia suggest that the securities are well understood and can fit heterogeneous farmer needs. This paper documents (1) heterogeneity of rainfall risk among farmers, (2) the understanding of securities and transmission of information about weather securities among members of endogenously formed risk-sharing groups, and (3) the nature of purchasing decisions and manner in which they are made.
    Keywords: Arrow securities, weather index insurance,
    Date: 2011
  7. By: Bernard, Tanguy; Dercon, Stefan; Taffesse, Alemayehu Seyoum
    Abstract: Fatalism is considered pervasive, especially in many poor communities. In this paper, we explore whether fatalistic beliefs have implications for the attitudes and behavior of poor rural households toward investment in the future. To explore the idea of fatalism, we draw inspiration from theories in psychology focusing on the role of locus of control and self-efficacy and also from the theoretical framework of aspiration failure as developed in recent economic literature. Using survey data from rural Ethiopia, we find evidence of fatalistic beliefs among a substantial group of rural households, as well as indicators consistent with narrow aspirations gap and low self-efficacy. We also find that such beliefs consistently correlate with lower demand for credit, in terms of loan size, repayment horizon, and productive purposes.
    Keywords: aspirations, aspirations failure, aspirations gap, aspirations window, fatalism, self-efficacy,
    Date: 2011

This issue is ©2011 by Aastha Pudasainee and Olivier Dagnelie. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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