nep-mfd New Economics Papers
on Microfinance
Issue of 2011‒10‒15
seven papers chosen by
Olivier Dagnelie
Instituto de Analisis Economico, CSIC

  1. List Randomization for Sensitive Behavior: An Application for Measuring Use of Loan Proceeds By Dean Karlan; Jonathan Zinman
  2. Measuring the environmental performance of microfinance By Marion Allet
  3. Balancing flexibility and discipline in microfinance: Innovative financial products that benefit clients and service providers By Michael Hamp; Carolina Laureti
  4. The Impact of Microfinance and its Role in Easing Poverty of Rural Households: Estimations from Pakistan By Asad K. Ghalib; Issam Malki; Katsushi S. Imai
  5. Access to Microfinance: Does it Matter for Profit Efficiency Among Small Scale Rice Farmers in Bangladesh? By Sumelius, John; Islam, K.M. Zahidul; Sipilainen, Timo
  6. Remittances and financial inclusion : evidence from El Salvador By Anzoategui, Diego; Demirguc-Kunt, Asli; Peria, Maria Soledad Martinez
  7. Cash transfers in an epidemic context : the interaction of formal and informal support in rural Malawi By Strobbe, Francesco; Miller, Candace

  1. By: Dean Karlan; Jonathan Zinman
    Abstract: Policymakers and microfinance institutions (MFIs) often claim to target poor entrepreneurs who then invest loan proceeds in their businesses. Typically in nonresearch settings these claims are assessed using readily available but unverified self-reports from client loan applications. Alternatively, independent surveyors could directly elicit how borrowers spent their loan proceeds. That too, however, could suffer from deliberate misreporting. We use data from the Peru and the Philippines in which independent surveyors elicited loan use both directly (i.e., by asking how individuals spent their loan proceeds) and indirectly (i.e., through a list-randomization technique that allows individuals to hide their answer from the surveyor). We find that direct elicitation under-reports the non-enterprise uses of loan proceeds.
    JEL: B4 O12
    Date: 2011–10
  2. By: Marion Allet
    Abstract: Environmental performance is becoming an increasing concern for all businesses. The microfinance sector is no exception. Today, a growing number of microfinance institutions are developing environmental management programs, and microfinance stakeholders are increasingly willing to monitor environmental improvement. However, no adapted methodology currently exists to do so. This article proposes a new tool to measure the environmental performance of microfinance institutions: the Microfinance Environmental Performance Index (MEPI). This tool is based on management performance indicators that have been adapted to the specificities of the microfinance sector. It measures MFIs’ environmental performance along five dimensions: environmental policy, ecological footprint, environmental risk assessment, green microcredit, and environmental non-financial services. MEPI can be a useful tool for research and serve as a basis for environmental strategy planning, progress monitoring, and communication in the microfinance industry.
    Keywords: Microfinance; Environmental Performance; Indicators; Green Microfinance
    JEL: G21 Q01 Q56
    Date: 2011–10
  3. By: Michael Hamp; Carolina Laureti
    Abstract: Product innovation in microfinance is aimed at responding to the variety of poor clients’ needs, i.e. to develop and sustain the offer of a range of client-led products. The paper describes innovative market-oriented products that combine flexibility features with financial discipline. Those are microsavings, microcredit and microinsurance products and come from microfinance institutions worldwide. This review shows that service providers are introducing various types of flexibility into financial contracts; and that flexibility combined with appropriate enforcement mechanisms may enhance clients’ discipline. We notice, however, that flexibility may require information-intensive lending technologies, raising the MFIs’ costs of screening and monitoring clients, and have a limited outreach.
    Keywords: product flexibility; discipline; commitments; microfinance
    JEL: D30 D82 G21 O12
    Date: 2011–10
  4. By: Asad K. Ghalib (Brooks World Poverty Institute, University of Manchester); Issam Malki (Departmaent of Economics, University of Bath); Katsushi S. Imai (School of Social Sciences, University of Manchester)
    Abstract: This study examines if household access to microfinance reduces poverty in Pakistan, and if so, to what extent and across which dimensions of well-being by taking account of the multi-dimensional aspect of poverty. The study draws on first-hand observations and empirical data gathered through the interviews of 1,132 households across eleven districts in the rural areas of the province of Punjab in Pakistan. We employ a quasi-experimental research design and make use of the data collected by interviewing both borrower (treatment) and non-borrower (control) households and control for sample selection biases by using propensity score matching. It has been confirmed that microfinance programmes had a positive impact on the welfare of participating households, that is, the poverty reducing-effects were observed and statistically significant on a number of indicators, including expenditure on healthcare or clothing, monthly household income, and certain dwelling characteristics, such as water supply and quality of roofing and walls.
    Keywords: Microfinance; poverty; impact assessment; propensity score matching; Pakistan
    JEL: C21 I32 O15 Q12
    Date: 2011–10
  5. By: Sumelius, John; Islam, K.M. Zahidul; Sipilainen, Timo
    Abstract: This paper measures profit efficiency and examines the effect of access to microfinance on the performance of rice firms in Bangladesh. An extended Cobb-Douglas stochastic frontier profit function was used to assess profit efficiency and profit loss of rice farmers in Bangladesh in a survey data of 360 farms throughout the 2008-2009 growing seasons. Model diagnostics reveal that serious selection bias exists that justifies the uses of sample selection model in stochastic frontier models. After effectively correcting for selectivity bias, the mean profit efficiency of the microfinance borrowers and non-borrowers were estimated at 68% and 52% respectively, thereby suggesting that a considerable share of profits were lost due to profit inefficiencies in rice production. The results from the inefficiency effect model show that householdsâ age, extension visits, off-farm income, region and the farm size are the significant determinants of inefficiency. Some indicative policy recommendations based on these findings have been suggested.
    Keywords: Stochastic frontier function, Profit efficiency, Selection bias, Bangladesh, Microfinance, Agricultural Finance, Crop Production/Industries,
    Date: 2011
  6. By: Anzoategui, Diego; Demirguc-Kunt, Asli; Peria, Maria Soledad Martinez
    Abstract: This paper investigates the impact of remittances on financial inclusion. This is an important issue given recent studies showing that financial inclusion can have significant beneficial effects on households. Using household-level survey data for El Salvador, the authors examine the impact of remittances on households'use of savings and credit instruments from formal financial institutions. They find that although remittances have a positive impact on financial inclusion by promoting the use of deposit accounts, they do not have a significant and robust effect on the demand for and use of credit from formal institutions. If anything, by relaxing credit constraints, remittances might reduce the need for external financing from financial institutions, while at the same time increasing the demand for savings instruments.
    Keywords: Access to Finance,Debt Markets,Population Policies,Remittances,Economic Theory&Research
    Date: 2011–10–01
  7. By: Strobbe, Francesco; Miller, Candace
    Abstract: This paper investigates the short-run consumption expenditure dynamics and the interaction of public and private arrangements of ultra-poor and labor-constrained households in Malawi using an original dataset from the Mchinjii social cash transfer pilot project (one of the first experiments of social protection policies based on unconditional cash transfers in Sub-Saharan Africa). The authors exploit the unique source of exogenous variation provided by the randomized component of the program in order to isolate the effect of cash transfers on consumption expenditures as well as the net crowding out effect of cash transfers on private arrangements. They find a statistically significant reduction effect on the level of consumption expenditures for those households receiving cash transfers, thus leading to the rejection of the perfect risk sharing hypothesis. Moreover, by looking at the effects of cash transfers on private arrangements in a context characterized by imperfect enforceability of contracts and by a social fabric heavily compromised by high HIV/AIDS rates, the analysis confirms the presence of crowding out effects on private arrangements when looking at gifts and (to a lesser extent) remittances, while informal loans seem to be completely independent from the cash transfer's reception. From a policy perspective, the paper offers a contribution to the evaluation of the very recent wave of social protection policies based on (unconditional) cash transfers in Sub-Saharan Africa, suggesting that there might be an important role for public interventions aimed at helping households to pool risk more effectively.
    Keywords: Safety Nets and Transfers,Rural Poverty Reduction,Labor Policies,Services&Transfers to Poor,Debt Markets
    Date: 2011–10–01

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