nep-mfd New Economics Papers
on Microfinance
Issue of 2011‒11‒01
five papers chosen by
Olivier Dagnelie
Instituto de Analisis Economico, CSIC

  1. Investment in Microfinance Equity: Risk, Return, and Diversification Benefits By Marie Brière; Ariane Szafarz
  2. Microfinance Non-Financial Services: A Key for Poverty Alleviation? Lessons from Mexico By Olga Biosca; Pamela Lenton; Paul Mosley
  3. Financial Inclusion in India: A case-study of West Bengal By Chattopadhyay, Sadhan Kumar
  4. Reinsuring the Poor: Group Microinsurance Design and Costly State Verification By Daniel J. Clarke
  5. The Social Cost of a Credit Monopoly By Andreas Madestam

  1. By: Marie Brière; Ariane Szafarz
    Abstract: This paper draws a global picture of worldwide microfinance equity. Taking full advantage of daily quoted prices of microfinance stocks from their issuance, we construct microfinance country equity indices and an international global microfinance index. We analyze changes in these indices, assessed in reference to comparable indices for the financial sector and also to national indices. Our findings show that microfinance has been closely correlated with the financial sector since 2003. In terms of risk exposure, estimates of the Capital Asset Pricing Model demonstrate that microfinance shares exhibit higher market beta than those of conventional financial institutions and have equivalent currency exposure.
    Keywords: Microfinance; portfolio management; equity; emerging markets.
    JEL: G11 G15 O16 G21
    Date: 2011–10
  2. By: Olga Biosca; Pamela Lenton; Paul Mosley
    Abstract: Microfinance non-financial services have been recently reformulated as high quality demand-led programs. In the Mexican context, these are now voluntary, can have a cost for the borrower and are frequently supplied in partnership with specialized public or private agencies. Using primary data from a survey of clients of two credit-plus programs in Chiapas, this paper examines and compares the participation determinants and added impact of the training sessions on monetary poverty outcomes of the borrowers. We focus on two specific programs: Business Development Services and Preventive Health Services. Results suggest that the participation decision mainly depends on borrowers’ characteristics. Non-financial services are found to reduce the clients’ likelihood of being under the asset poverty line. No significant differences were observed between the impacts of the two non-financial programs.
    Keywords: Non-financial services, Credit-plus, Microfinance, Poverty, Oportunidades.
    Date: 2011–10
  3. By: Chattopadhyay, Sadhan Kumar
    Abstract: The study observes that although there has been an improvement in outreach activity in the banking sector, the achievement in respect of financial inclusion is not significant in West Bengal. An index of financial inclusion (IFI) has been developed in the study using data on three dimensions of financial inclusion. It is revealed from the index that Kolkata district leads with the highest value of IFI, while rest of the districts show a very low level of financial inclusion. This implies that the State has to go a long way in achieving financial inclusion. Apart from this computation, a survey has also been conducted in the state in order to gauge the financial inclusion in rural Bengal and the results reveal that around 38 per cent of the respondents do not have sufficient income to open a savings account in the bank. It is also revealed that moneylenders are still a dominant source of rural finance despite wide presence of banks in rural areas. It is also observed that although various measures have been undertaken for financial inclusion in the State, the success is not found to be significant. However, only supply side factor is not responsible for the financial exclusion. Demand side factors are also equally responsible for this exclusion. Thus there is a need to solve both these problems with the help of appropriate policies. A whole-hearted effort is called for from all the corners of the society, viz., bankers, beneficiaries and regulators in order to make financial inclusion more meaningful and effective.
    Keywords: index of financial inclusion; money-lenders; dimensions
    JEL: O47 C12 D92 F43 G21
    Date: 2011–01
  4. By: Daniel J. Clarke
    Abstract: This paper analyses collusion-proof multilateral insurance contracts between a risk neutral insurer and multiple risk averse agents in an environment of asymmetric costly state verification. Optimal contracts involve the group of agents pooling uncertainty and the insurer acting as reinsurer to the group, auditing and paying a claim only when the group or a sub-group has incurred a large enough aggregate loss. We interpret our models as providing support for insurance contracts between insurance providers, such as microinsurers or governments, and groups of individuals who have access to cheap information about each other, such as extended families or members of close-knit communities. Such formal contracts complement, and could even crowd in, cheap nonmarket insurance arrangements.
    Keywords: Microinsurance, Group insurance, Costly state verification, Mechanism design
    JEL: D14 D82 G22 O16
    Date: 2011
  5. By: Andreas Madestam
    Abstract: Banks provide credit and take deposits. Whereas a high price in the credit market increases banks’ retained earnings and attracts more deposits, it reduces lending if borrowers are sufficiently poor to be tempted by diversion. Thus optimal bank market structure trades off the benefits of monopoly banking in attracting deposits against losses due to tighter credit. The model shows that market structure is irrelevant if both banks and borrowers lack resources. Monopoly banking induces tighter credit rationing if borrowers are poor and banks are wealthy, and increases lending if borrowers are wealthy and banks lack resources. The results indicate that improved legal protection of creditors is a more efficient policy choice than legal protection of depositors, and that subsidies to firms lead to better outcomes than subsidies to banks. There are also likely to be sizable gains from promoting bank competition in developing countries.
    Date: 2011

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