New Economics Papers
on Microfinance
Issue of 2011‒11‒28
three papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Group lending with endogenous group size By Bourjade, Sylvain; Schindele, Ibolya
  2. Performance and international investments in microfinance institutions By Roy Mersland; Ludovic Urgeghe

  1. By: Bourjade, Sylvain; Schindele, Ibolya
    Abstract: This paper focuses on the size of the borrower group in group lending. We show that, when social ties in a community enhance borrowers' incentives to exert effort, a profit-maximizing financier chooses a group of limited size. Borrowers that would be fundable under moral hazard but have insufficient social ties do not receive funding. The result arises because there is a trade-off between raising profits through increased group size and providing incentives for borrowers with less social ties. The result may explain why many micro-lending institutions and rural credit cooperatives lend to groups of small size.
    Keywords: Group Lending; Moral Hazard; Social Capital
    JEL: D82 G21
    Date: 2011
  2. By: Roy Mersland; Ludovic Urgeghe
    Abstract: Using data from 319 microfinance institutions (MFIs) in 68 developing countries, we study the degree to which international debt investments are related to the financial and social performances of MFIs. We find that commercial investments are mainly related to financial performance and level of professionalisation of the MFIs. The targeting of women is not a priority, even though international commercial investors target MFIs that provide small loans. Subsidised investments, however, are mainly driven by the targeting of women, while financial performance and the level of professionalisation of the MFI is not a priority.
    Keywords: microfinance,; commercialisation; socially responsible investors; microfinance investment vehicles; social performance
    JEL: G11 G23 L20 O16 O17
    Date: 2011–11
  3. By: Prof. Dr. Bidyadhar Behera (Social science researcher, Senior faculty member, Commerce in P.N., Autonomous College, Khurdha, Odisha ,India)
    Abstract: Entrepreneurial development and management has come to be recognized as the key to rapid and sustainable economic development as well as the welfare and progress of the mankind. Traditionally, the informal sector units including micro and small enterprises(MSEs) attract a very small portion of the banks’ portfolio. Banks along with other institutions, by and large, responsible for providing finance are more accustomed to dealing with more confident, literate borrowers of urban areas. Given this scenario, micro finance(MF) as a means of alleviating poverty has gained momentum in the last couple of decades across India vis-à-vis Odisha, a province fraught with the twin problems of poverty and unemployment. At the same time, MSEs contribute significantly to economic growth, social stability and equity. Assuming lot of significance for a Mao-infested Province like Odisha, these informal sector units operate under the conditions of extreme resource crunch. Besides, their qualitative and quantitative limitations due to outdated technologies result in a low level of productivity and extremely high cost
    Keywords: Micro and Small Enterprise (MSE), Self Help Group (SHG), Sustainable Livelihood (SL), Joint Liability Group (JLG)
    JEL: M0
    Date: 2011–10

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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.