New Economics Papers
on Microfinance
Issue of 2012‒02‒20
five papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Insurance versus Savings for the Poor: Why One Should Offer Either Both or None By Landmann, Andreas; Vollan, Björn; Frölich, Markus
  2. Under-Savers Anonymous: Evidence on Self-Help Groups and Peer Pressure as a Savings Commitment Device By Kast, Felipe; Meier, Stephan; Pomeranz, Dina
  3. Empowering the frailty: dissecting the role of microcredit By Vijayamohanan, Pillai N.; Asalatha, B. P.
  4. Micro-finance Competition: Motivated Micro-lenders, Double-dipping and Default By Brishti Guha; Prabal Roy Chowdhury
  5. Is it all about Money? A Randomized Evaluations of the Impact of Insurance Literacy and Marketing Treatments on the Demand for Health Microinsurance in Senegal By BONAN Jacopo; DAGNELIE Olivier; LEMAY-BOUCHER Philippe; TENIKUE Michel

  1. By: Landmann, Andreas (University of Mannheim); Vollan, Björn (University of Mannheim); Frölich, Markus (University of Mannheim)
    Abstract: This paper analyzes data from a novel field experiment designed to test the impact of two different insurance products and a secret saving device on solidarity in risk-sharing groups among rural villagers in the Philippines. Risk is simulated by a lottery. Risk-sharing is possible in solidarity groups of three and insurance is introduced via less risky lotteries. Our main hypothesis is that formal market-based products lead to lower voluntary transfers among network members. We also test for the persistence of this crowding-out of solidarity. We find evidence for a reduction of solidarity by insurance if shocks are observable. Depending on insurance design, there is also evidence for persistence of this effect even if insurance is removed. Simulations using our regression results show that the benefits of insurance are completely offset by the reduction in transfers. However, if secret saving is possible solidarity is very low in general and there is no crowding out effect of insurance. This suggests that introducing formal insurance is not as effective as it is hoped for when the monetary situation can be closely monitored, but that it might be a very important complement when savings inhibit observing financial resources. The implication for policy is that microsavings should be offered simultaneously with microinsurance.
    Keywords: insurance, savings, informal risk sharing, crowding out, field lab experiment, Philippines
    JEL: C93 O12 Z13
    Date: 2012–01
  2. By: Kast, Felipe (Pontificia Universidad Catolica de Chile); Meier, Stephan (Columbia University); Pomeranz, Dina (Harvard Business School)
    Abstract: While commitment devices such as defaults and direct deposits from wages have been found to be highly effective to increase savings, they are unavailable to the millions of people worldwide who not have a formal wage bill. Self-help peer groups are an alternative commitment device that is widespread and highly accessible, but there is little empirical evidence evaluating their effectiveness. We conduct two randomized field experiments among low-income micro-entrepreneurs in Chile. The first experiment finds that self-help peer groups are very potent at increasing savings. In contrast, a more classical measure, a substantially increased interest rate, has no effect on the vast majority of participants. A second experiment is designed to unbundle the key elements of peer groups as a commitment device, through the use of regular text messages. It finds that surprisingly, actual meetings and peer pressure do not seem to be crucial in making self-help peer groups an effective tool to encourage savings.
    Keywords: savings, commitment device, peer pressure, field experiment
    JEL: O16 D03 D14 D91
    Date: 2012–01
  3. By: Vijayamohanan, Pillai N.; Asalatha, B. P.
    Abstract: The present paper seeks to dissect the significance of micro-credit in empowering women. It starts with a brief discussion on the role of micro-credit in poverty alleviation in general, widely acclaimed in contrast to the top-down policies. The concept of empowerment is defined from different perspectives of power, feminism and personal autonomy in family framework before taking up the agency of micro-credit for analysis. Here we identify three contrasting ‘paradigms’ with different underlying aims and understandings and different policy prescriptions and priorities in relation to both micro-finance itself and to gender policy such as the feminist empowerment paradigm, the poverty alleviation paradigm and the financial self-sustainability paradigm. Though some evaluations paint a positive picture of the impact of credit programs on women's lives in that access to savings and credit can initiate or strengthen a series of interlinked and mutually reinforcing ‘virtuous spirals’ of empowerment, we take care not to ignore the practical difficulties involved. Also considered in this respect is the role of outside agencies in the empowerment process.
    Keywords: women empowerment; micro-credit; power; poverty alleviation; family; autonomy
    JEL: I30 D63 G21 J16
    Date: 2011–08–15
  4. By: Brishti Guha (Department of Economics, Singapore Management University, 90 Stamford Road, Singapore 178903); Prabal Roy Chowdhury
    Abstract: We develop a tractable model of competition among motivated MFIs. We find that equilibria may or may not involve double-dipping (and consequently default), with there being double-dipping whenever the MFIs are very profit-oriented. Moreover, in an equilibrium with double-dipping, borrowers who double-dip are actually worse off compared to those who do not. Further, for intermediate levels of motivation, there can be multiple equilibria, with a double-dipping equilibrium co-existing with a no default equilibrium. Interestingly, an increase in MFI competition can lower efficiency, as well as increase the extent of double-dipping and default. Further, the interest rates may go either way, with the interest rate likely to increase if the MFIs are very motivated.
    Keywords: Micro-finance competition, motivated MFIs, double-dipping, default
    JEL: C72 D40 D82 G21
    Date: 2012–01
  5. By: BONAN Jacopo; DAGNELIE Olivier; LEMAY-BOUCHER Philippe; TENIKUE Michel
    Abstract: In Senegal mutual health organizations (MHOs) have been present in the greater region of Thiès for years. Despite their benefits, in some areas there remain low take-up rates. We offer an insurance literacy module, communicating the benefits from health microinsurance and the functioning of MHOs, to a randomly selected sample of households in the city of Thiès. The effects of this training, and three cross-cutting marketing treatments, are evaluated using a randomized control trial. We find that the insurance literacy module has no impact, but that our marketing treatment has a significant effect on the take up decisions of households.
    Keywords: community based health insurance scheme; Randomized control trials; Africa; Senegal
    JEL: C93 O17
    Date: 2012–02

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