New Economics Papers
on Microfinance
Issue of 2011‒11‒07
seven papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Efficiency Analysis of Micro-finance Institutions in Pakistan By Ahmad, Usman
  2. Financial permeation as a role of microfinance : has microfinance actually been helpful to the poor? By Inoue, Takeshi; Hamori, Shigeyuki
  3. Seasonal migration and micro-credit in the lean period : evidence from northwest Bangladesh By Shonchoy, Abu S
  4. Vulnerability of Microfinance to Strategic Default and Covariate Shocks:Evidence from Pakistan By Kurosaki, Takashi; Khan, Hidayat Ullah
  5. Making the poor pay for public goods via microfinance: Economic and political pitfalls in the case of water and sanitation By Mader, Philip
  6. Obstacles to Financing Micro and Small Enterprises: Empirical Evidence from a Small Island Developing State By Parmendra Sharma; Neelesh Gounder
  7. Another Perspective on Gender Specific Access to Credit in Africa By Henrik Hansen; John Rand

  1. By: Ahmad, Usman
    Abstract: Microfinance collectively refers to the supply of loans, savings accounts, and other basic financial services like insurance, to the poor. About one billion people globally live in households with per capita incomes of one dollar per day (Morduch J. 1999). Microfinance Institutions (MFIs) are special financial institutions. They have both a social nature and a for-profit nature. Their performance has been traditionally measured by means of financial ratios. The objective of the study has been to estimate the efficiency of microfinance institutions in Pakistan. Non parametric Data Envelopment analysis has been used to analyze the efficiency of these institutions by using data for the year 2003 and 2007 respectively. Both input oriented and output oriented methods have been considered under the assumption of constant return to scale technologies and microfinance should provide services on sustainable basis. A microfinance institution is said to be financially sustainable if it without the use of subsidies, grants, or other concessional resources, it can profitably provide finance to micro enterprises on an acceptable scale.
    Keywords: DEA; Efficiency; Microfinance; Pakistan
    JEL: D53 E58
    Date: 2011–10–20
  2. By: Inoue, Takeshi; Hamori, Shigeyuki
    Abstract: This article is distinct in its application of the logit transformation to the poverty ratio for the purpose of empirically examining whether the financial sector helps improve standards of living for low-income people. We propose the term financial permeation to describe how financial networks expand to spread money among the poor. We measure financial permeation by three indicators related to microfinance institutions (MFIs) and then examine its effect on poverty reduction at the macro level using panel data for 90 developing countries from 1995 to 2008. We find that financial permeation has a statistically significant and robust effect on decreasing the poverty ratio.
    Keywords: Developing countries, Microfinance, Poverty, Poverty reduction, Financial permeation, Microfinance, Panel Data
    JEL: G21 O16 O50
    Date: 2011–05
  3. By: Shonchoy, Abu S
    Abstract: This paper investigates the relationship between access to micro-credit and temporary seasonal migration, an issue which is largely ignored in the standard rural-urban migration literature. Seasonal migration due to agricultural downturns is a common phenomenon in developing countries. Using primary data from a cross-sectional household survey from the northwest part of Bangladesh, this study quantifies the factors that influence such migration decisions. Among other results, we find that network effects play a significant role in influencing the migration decision, with the presence of kinsmen at the place of destination having considerable impact. Seasonal migration is a natural choice for individual suffering periodic hardship; however the strict weekly loan repayment rules of Micro-credit Institutes can have an adverse effect on this process, reducing the ability of borrowers to react to a shock. Our result suggests that poor individuals prefer the option of not accessing the micro-credit and opt for temporal seasonal migration during the lean period. The results have numerous potential policy implications, including the design of typical micro-credit schemes.
    Keywords: Bangladesh, Microfinance, Population movement, Lean period, Seasonal migration, Micro-credit
    JEL: J62 J64 J65 O15 O18 R23 G21
    Date: 2011–03
  4. By: Kurosaki, Takashi; Khan, Hidayat Ullah
    Abstract: This paper investigates the repayment behavior of microfinance borrowers in Pakistan using a unique dataset of about 45,000 installments/repayments covering 2,945 microfinance borrower households over the period 1998-2007. In early 2005, the microfinance institution for these borrowers adopted a new system with strict enforcement of punishment against repayment delays/defaults. This reform led to a healthy situation with almost zero default rates, overcoming the previous problem of frequent defaults. We hypothesize that strategic default under the joint liability mechanism-if one group member is hit by a negative shock and faces difficulty in repayment, the other members who are able to repay may decide to default as well, instead of helping the unlucky member-was encouraged by weak enforcement of dynamic incentives and responsible for the pre-reform failure. As evidence for this interpretation, we show that a borrower’s delay in installment repayment was correlated with other group members’ repayment delays, beyond the level explained by possible correlation of project failures due to locally covariate shocks during the pre-reform period. The post-reform period is divided into two sub-periods by an earthquake in October 2005. Analysis of repayment behavior in the post-reform period yields the results that suggest that (1) the relative success under the new system was because of the suppression of strategic behavior among group members, thereby allowing joint liability schemes to function as individual lending schemes de facto and (2) the earthquake only marginally affected the new system in terms of repayment delays.
    Keywords: group lending, joint liability, contingent renewal, strategic default, covariate shocks
    JEL: O16 G29 D82
    Date: 2011–03
  5. By: Mader, Philip
    Abstract: This paper critically assesses microfinance's expansion into the provision of public goods. It focuses on the problem of public goods and collective action and refers to the specific example of water and sanitation. The microfinancing of water and sanitation is a private business model which requires households to recognise, internalise and capitalise the benefits from improved water and sanitation. This requirement is not assured. Water and sanitation, being closely linked to underlying common-pool resources, are public goods which depend on collective governance solutions. They also have shifting public/private characteristics and are merit goods which depend on networks to enable provision to take place. Two cases, from Vietnam and India, are presented and evaluated. Despite their dissimilar settings and institutional designs, evidence is found that both projects encountered similar and comparable problems at the collective level which individual microfinance loans could not address. The paper concludes that trying to make the poor pay for public goods runs into four pitfalls: politics, public capacity, values and equity. -- Das Papier untersucht die Auswirkungen von Mikrofinanzierung auf öffentliche Güter und kollektives Handeln am Beispiel der Errichtung von Wasser- und Sanitäranlagen in Ländern der Dritten Welt. Das zugrunde liegende private Geschäftsmodell geht davon aus, dass Haushalte mittels Mikrokredite die Vorteile verbesserter Wasser- und Sanitäreinrichtungen erkennen und sich auch finanziell zunutze machen können - diese Voraussetzung ist allerdings nicht gegeben. Zudem sind Wasser- und Sanitärversorgung meritorische Güter, für deren Bereitstellung Netzwerke erforderlich sind. Sie erfordern eine kollektive Verwaltung, weil sie sowohl öffentliche als auch private Merkmale aufweisen und mit Gemeinschaftsgütern eng verknüpft sind. Ausgangslage und institutionelle Rahmenbedingungen der beiden untersuchten Fallbeispiele in Vietnam und Indien sind unterschiedlich. Trotzdem geben die Ergebnisse der Studie Hinweise auf vergleichbare Probleme auf der kollektiven Ebene, die nicht über Mikrofinanzierung lösbar sind. Es zeigt sich, dass der Versuch, die Armen zur Finanzierung öffentlicher Güter zu bringen, an mehreren Hindernissen scheitert: an der lokalen Politik, einem unzureichend entwickelten öffentlichen Sektor, unterschiedlichen Wertvorstellungen und mangelnder Verteilungsgerechtigkeit.
    Date: 2011
  6. By: Parmendra Sharma; Neelesh Gounder
    Keywords: Fiji, South Pacific, financing obstacles, micro and small enterprises (MSEs)
    Date: 2011–10
  7. By: Henrik Hansen (Institute of Food and Resource Economics, University of Copenhagen); John Rand (Institute of Food and Resource Economics, University of Copenhagen)
    Abstract: Using firm level data from eight Sub-Saharan Africa countries we examine credit constraint differentials between male and female manufacturing entrepreneurs. Enterprises owned by female entrepreneurs are less likely to be credit constrained compared to their male counterparts. The magnitude of this credit constraint gap varies with constraint and ownership definitions but the direction of the gap does not. Using a generalized Blinder-Oaxaca decomposition, we investigate if the gap is due to differences in observable characteristics or to unexplained variations in the returns to these characteristics. We find the gap to be associated with the unexplained component. We argue that the finding is mainly due to female gender favoritism in loans to micro and small firms because (i) the gap is reversed for medium size enterprises and, (ii) we find no sign of superior female entrepreneurial performance in terms of capacity utilization, labor productivity or firm size growth.
    Keywords: Credit, Entrepreneurship, Gender, Private Sector, SMEs
    JEL: G21 J16 L25
    Date: 2011–10

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