New Economics Papers
on Microfinance
Issue of 2012‒01‒25
six papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. The Diffusion of Microfinance By Abhijit Banerjee; Arun G. Chandrasekhar; Esther Duflo; Matthew O. Jackson
  2. Microfinance, the long tail and mission drift By Carlos Serrano-Cinca; Begoña Gutiérrez-Nieto
  3. Demasking the impact of microfinance By Helke Waelde
  4. Adaptation to climate change, Vulnerability and Micro- Insurance Business: A Study on Forest Dependent Communities in Drought prone areas of West Bengal, India By Jyotish Prakash Basu
  5. Is culture a determinant of financial development? By Dutta, Nabamita; Mukherjee, Deepraj
  6. Development Finance Institutions in Nigeria: Structure, Roles and Assessment By ADESOYE, A. Bolaji; ATANDA, Akinwande Abdulmaliq

  1. By: Abhijit Banerjee; Arun G. Chandrasekhar; Esther Duflo; Matthew O. Jackson
    Abstract: We examine how participation in a microfinance program diffuses through social networks. We collected detailed demographic and social network data in 43 villages in South India before microfinance was introduced in those villages and then tracked eventual participation. We exploit exogenous variation in the importance (in a network sense) of the people who were first informed about the program, "the injection points". Microfinance participation is higher when the injection points have higher eigenvector centrality. We estimate structural models of diffusion that allow us to (i) determine the relative roles of basic information transmission versus other forms of peer influence, and (ii) distinguish information passing by participants and non-participants. We find that participants are significantly more likely to pass information on to friends and acquaintances than informed non-participants, but that information passing by non-participants is still substantial and significant, accounting for roughly a third of informedness and participation. We also find that, conditioned on being informed, an individual's decision is not significantly affected by the participation of her acquaintances.
    JEL: D13 D85 G21 L14 O12 O16 Z13
    Date: 2012–01
  2. By: Carlos Serrano-Cinca; Begoña Gutiérrez-Nieto
    Abstract: Poor people were excluded from financial services until microfinance institutions (MFIs) emerged. The mission of MFIs is to alleviate poverty, contributing to women empowerment especially in rural communities. Microcredits can be analyzed under Pareto’s 80/20 Principle. Their clients are situated in the long tail of the wealth distribution function. This niche market is not very attractive, because of its high administrative costs, lack of deposits and the need for compensating low revenues with fluctuating subsidies. Some MFIs have drifted from their mission. This paper presents a model to explain microfinance and mission drift, tested with hypotheses. The results from the empirical study show a pattern of mission centered MFI: a small NGO, with labor productivity, receiving donations and obtaining a high margin. The need for reducing interest rates is concluded. According to the long tail theory, this can be done through the use of efficient technology, as the e-commerce sector has achieved.
    Keywords: Microfinance; financial ratios; outreach; social performance; mission drift; long tail; bankruptcy
    Date: 2012–01
  3. By: Helke Waelde (KfW Entwicklungsbank, Frankfurt am Main, Germany)
    Abstract: We reconsider data from a randomized control trial study in India. The data reveal the impact of a microloan program. We extend the often used randomized impact evaluation and di¤erence-in-di¤erence approach by quantile regression and the consideration of the quantile treatment effects. The use of additional, more advanced, evaluation methods allows a more detailed consideration of borrowers at the lower and at the upper end of the wealth distribution. We find a strong negative and signi.cant time-trend. Furthermore, we observe a negative impact of the provi- sion of microfinance loans such that the overall impact is even more negative. This is particularly well seen for entrepreneurs in the lower and in the higher quantiles. As we learn that poor entrepreneurs use microloans for consumption, we doubt that micro.nance is the right instrument for them. The data suggest that providing microloans for average entrepreneurs, who can hire very poor entrepreneurs, might be an effective solution for that dilemma.
    JEL: E43 E52 E58 D44
    Date: 2011–11–09
  4. By: Jyotish Prakash Basu (Associate Professor& Head, Dept. of Economics, West Bengal State University, Email:
    Abstract: There are two main responses to climate change. One is adaptation and other is mitigation. The adaptation process includes three essential stages i.e. vulnerability assessment, capacity building and implementation of adaptation measures. The fundamental goal of adaptation strategies is the reduction of the vulnerabilities to climate-induced change. In India 700 million rural populations directly depend on climate-sensitive sectors like agriculture, forest and fisheries and natural resources such as water, biodiversity, mangroves, coastal zones, and grass lands for their subsistence and livelihood. Forests are not just carbon stores. Forests are home to the people who are entirely or partly dependent on forests for their livelihood. In India about 300 million rural poor are dependent on forest for livelihood and more than half of them are tribal and depend on non-timber forest products (NTFPs). Forest as the vulnerable sector and constitute an integral part of social life of tribals and others living in and around forest areas and contribute substantially to the food supply and livelihood security of tribal populations in India. The objectives of the paper are four fold. First, the paper attempts to measure quantitative vulnerability assessment for the forest dependent communities where drought hazards are prevalent and to identify household adaptation strategies to reduce vulnerability due to climate change. Second, the paper tries to estimate the factors responsible for decisions of adaptation to climate change using probabilistic model of Heckman’s two-step process. Third, the paper tries to discuss how Security Diagram Approach and Fuzzy Inference system are used to measure drought vulnerability in India. Lastly, the paper also examines the development policies of the Government of India including the role of micro-insurance and weather-indexed insurance to enhance the resilience of climate change. The paper is an empirical study based on data collected through field survey. This study covers four villages- Rangakula, Khayarakura, Dhansimla and Bandhgaba, both are scheduled tribal based villages located in Sonamukhi forest area in the District of Bankura, one of the drought prone districts of West Bengal, consisting of 100 households in 2010. Socio-Economic Vulnerability Assessment for each village has been calculated. In this study, six factors i.e., public health facility, sanitation, educational status; live stock assets, food sufficiency from agriculture and awareness to climate change have been incorporated for socioeconomic vulnerability assessment of each village. Vulnerability Indices have been calculated using Three Categorized Ranking Method (TCR) assigning scores of 1 to 3, 1 being the least vulnerable. Besides, this paper has identified the households’ adaptation strategies like out-migration; formation of self-help group (SHGs), water harvesting, accessibility of non-timber forest products and livestock rearing. The paper has identified key vulnerabilities as education, health hygiene and food insufficiency. The socio-economic factors and climatic factors both affect the decisions of adaptations to climate change. Micro4 insurance and weather indexed insurance are providing services to marginalized section of the community in developing countries including India. The Government of India has undertaken little policy action to reduce climate-related vulnerability particularly in the drought- prone regions of West Bengal. This paper has important policy implications for poverty, livelihood vulnerability and migration.
    Keywords: vulnerability, adaptation, security diagram, socio-economic vulnerability assessment, fuzzy inference system, migration, micro-insurance
    JEL: Q54 O11 O13
    Date: 2011–11
  5. By: Dutta, Nabamita; Mukherjee, Deepraj
    Abstract: The paper investigates the missing link in the literature – whether informal institutions, or what is known as culture, can affect the level of financial development for a country? Our hypothesis stresses that the cultural dimensions of a country can have an impact on its financial set up. We consider multiple dimensions of culture, identified in the literature by Tabellini, to test our hypothesis. As culture evolve in the form of greater trust, control and other traits, individuals’ attitudes towards financial market change, and they engage in greater financial transactions. This, in turn, leads to better financial development. Using quantile estimation technique for a cross-section of 90 countries we find that culture significantly influences the level of financial development. To ensure the robustness of our findings we use Hofstede’s cultural dimension-‘uncertainty avoidance index’ as an alternative measure for culture. Our results hold for multiple measures of financial development.
    Keywords: Informal Institutions; Financial Development; Culture; Social capital
    JEL: G1 Z1 O17
    Date: 2011–05–13
  6. By: ADESOYE, A. Bolaji; ATANDA, Akinwande Abdulmaliq
    Abstract: The efficient channelling of funds and allocation of financial resources are roles expected to be undertaken in the financial system to facilitate productive growth in the real sector of the economy. There have been overlapping roles in the Nigerian financial system and this has resulted to inefficient intermediation and under-development of vibrant sectors of the economy. Thus, necessitated the emergence of development financial institutions to render services to the large un-catered economics agents (especially in the rural areas) by the universal banks. The institutions are expected to offer specialized and micro financial services, offer relative cheap and accessible financing options, provide long-term finance for infrastructure development, industrial growth, agriculture, small and medium enterprises (SME) development and provide financial products for certain sections of the people. However, this paper evaluates the roles and structure of the development financial institutions in Nigeria and also assesses their performance over time.
    Keywords: Development Finance Institutions; Financial Institutions; Financial Intermediation; Real Sectors; Financial Services; Financial Products; Small and Medium Scale Enterprises; Nigeria
    JEL: E0 E44 F33
    Date: 2012

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