nep-mfd New Economics Papers
on Microfinance
Issue of 2011‒12‒19
six papers chosen by
Olivier Dagnelie
Instituto de Analisis Economico, CSIC

  1. Socially Disadvantaged Groups and Microfinance in India By Jean-Marie Baland; Rohini Somanathan; Lore Vandewalle
  2. Public Good Provision in Indian Rural Areas: the Returns to Collective Action by Microfinance Groups By Paolo Casini; Lore Vandewalle
  3. The Role of Accountants in Indian Microfinance Groups: a Trade-Off Between Financial and Non-Financial Benefits By Lore Vandewalle
  4. Les déterminants de la structure financière des institutions de microfinance By Hubert Tchakouté Tchuigoua; Guy Serge Kouao
  5. How prudent are rural households in developing transition economies: By Jin, Ling; Chen, Kevin Z.; Yu, Bingxin; Huang, Zuhui
  6. Households' savings in China By Riccardo Cristadoro; Daniela Marconi

  1. By: Jean-Marie Baland (Center for Research in the Economics of Development, University of Namur); Rohini Somanathan; Lore Vandewalle (Center for Research in the Economics of Development, University of Namur)
    Abstract: In this paper we provide an empirical analysis of the performance of microfinance groups, known as Self-Help groups, based on an original census we carried out in a poor area of Northern India. We examine whether traditionally disadvantaged villagers, such as members of lower castes or landless farmers, are less likely to have access to groups. We also analyze their performance in terms of access to bank loans, which is an important benefit of the groups. We nd evidence of the attrition process being selective against lower castes: they have a lower probability of becoming a permanent member of a group. The net effects in terms of their expected access to a bank loan remain however relatively limited. By contrast, even though landless farmers are more likely to fail or leave the groups, they tend to benet disproportionately. In expected terms, they receive more than two times the amounts of bank loans given to farmers owning more than one acre. Overall, the program therefore has positive and important distributional implications.
    Date: 2011–12
  2. By: Paolo Casini (LICOS, K.U.Leuven); Lore Vandewalle (Center for Research in the Economics of Development, University of Namur)
    Abstract: Self-Help Groups (SHGs) are the most common form of microfinance in India. We study the impact of collective actions undertaken by these groups, composed of women only, on the variety of public goods the elected local authorities deal with. We provide a simple model that suggests two hypotheses that we test and confirm using first hand data. The rst hypothesis states that local authorities provide a larger variety of public goods when SHGs undertake collective actions, compared to a situation with exclusive provision by the local authority. The second hypothesis states that local authorities begin or increase the provision of public goods preferred by SHGs and that these might include goods that exert a negative externality on other villagers. We provide evidence of an important non-financial benefit of microfinance: it provides a platform that allows socially disadvantaged women to meet regularly and discuss problems. When they undertake collective actions to solve those problems, these are recognized by the local authorities. Problems that are closer to the needs of women seem to find their way into the political agenda.
    Date: 2011–12
  3. By: Lore Vandewalle (Center for Research in the Economics of Development, University of Namur)
    Abstract: Self-Help Groups (SHGs) create a platform that allows women to meet on a weekly basis to save and to take loans if needed. Strict records of all saving and lending is important, both to avoid con flicts in the group and to obtain access to bank loans. Accounting is done either internally by a group member or externally by another villager. Economic theory suggests that repeated interaction between individuals can help to build social capital. However, in the context of these SHGs, the presence of an, often male, external accountant might hamper this process. Using rst hand data on SHGs in Northern India, I nd that repeated interaction is more likely to create non-financial benefits in the form of mutual assistance and collective action when there is no external involvement. However, these benets come at a cost, as SHGs with internal accountants distribute financial benefits more unequally and the accountants themselves receive larger shares than the other members of the groups. I provide evidence that the larger shares cannot be explained as a compensation for better financial performance, but that some form of elite capture occurs. Although this implies that an internal accountant is more expensive than an external accountant, there is no evidence that groups with internal accountants are less stable. Members are not more likely to leave groups, possibly because the loss in nancial benets is outweighed by the gain in non-financial benefits.
    Date: 2011–12
  4. By: Hubert Tchakouté Tchuigoua (Bordeaux Ecole de Management - Bordeaux Ecole de Management); Guy Serge Kouao (IRGO - Institut de Recherche en Gestion des Organisations - IAE de Bordeaux - Université Montesquieu - Bordeaux IV : EA4190)
    Abstract: S'appuyant sur les théories du financement hiérarchique, cet article vérifie empiriquement la relation entre la note, qui traduit le niveau de risque perçu par les agences de notation, et la structure financière des institutions de microfinance. En raison d'un biais de sélection, la procédure en deux étapes du modèle de sélection d'Heckman a été utilisée sur un échantillon de 277 institutions de microfinance notées entre 2001 et 2007 et 214 non notées. La note obtenue, la performance et la taille jouent un rôle important dans l'évolution de la structure financière de ces organisations. Ce résultat abonde dans le sens des prédictions de la théorie du financement hiérarchique, indiquant ainsi que les IMF hiérarchisent leurs choix de financement et que celles qui sont bien notées privilégient l'autofinancement au financement externe et l'endettement aux fonds propres.
    Keywords: notation ; structure financière ; microfinance
    Date: 2011
  5. By: Jin, Ling; Chen, Kevin Z.; Yu, Bingxin; Huang, Zuhui
    Abstract: Rural households in developing economies frequently use precautionary saving to cope with income risk. Such prudent behavior can be strengthened in transition economies where more risks are typically faced by households during and after reforms. This paper uses a rich panel of rural households in Zhejiang, China, to examine the correlation between income uncertainty and the target ratio of wealth to permanent income as suggested by the buffer-stock model. The empirical results suggest that Chinese rural households hold a significant level of wealth to mitigate the adverse impacts of income risk. Simulation results show that an increase in income risk leads to a sharp increase in household wealth and precautionary saving could drop substantially if income risk is eliminated. The high level of prudence of rural households under economic transition can help us better understand the developments in China, which will have policy implications for both developing and transition countries.
    Keywords: buffer-stock model, Income risk, precautionary saving,
    Date: 2011
  6. By: Riccardo Cristadoro (Bank of Italy); Daniela Marconi (Bank of Italy)
    Abstract: This paper studies the determinants of Chinese households’ saving. Domestic saving in China is the highest in the world in terms of GDP and it is mirrored in a large and persistent current account surplus. First, we show that notwithstanding the rising contribution of government and firms to national savings, they stand out because of households’ behaviour. Our econometric analysis proceeds from the work of Modigliani and Cao (2004) that explained rising personal saving in China within the life-cycle hypothesis. We prove that their explanation is insufficient. Then, using panel data and exploiting differences among provinces and between urban and rural households, we show that there is a significant dissimilarity in savings decisions in urban and rural areas and that motives other than those envisaged in the life-cycle model might play a major role, above all precautionary savings and liquidity constraints. Our results suggest that to reduce the propensity to save of Chinese households it is necessary to improve the provision of social services and to facilitate access to credit.
    Keywords: China, saving rate, precautionary savings
    JEL: D12 E21 O18
    Date: 2011–11

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