New Economics Papers
on Microfinance
Issue of 2012‒03‒21
six papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. The Macroeconomics of Microfinance By Francisco J. Buera; Joseph P. Kaboski; Yongseok Shin
  2. You Can Pick Your Friends, But You Need to Watch Them: Loan Screening and Enforcement in a Referrals Field Experiment By Gharad Bryan; Dean Karlan; Jonathan Zinman
  3. Appraising the Thailand village fund By Boonperm, Jirawan; Haughton, Jonathan; Khandker, Shahidur R.; Rukumnuaykit, Pungpond
  4. The sacrifices of microborrowers in Ghana – A customer-protection perspective on measuring over-indebtedness By Jessica Schicks
  5. Kenya's mobile revolution and the promise of mobile savings By Demombynes, Gabriel; Thegeya, Aaron
  6. Las tasas de interés y sus repercusiones en las microfinanzas en América Latina y el Caribe By Anita Campion; Rashmi Kiran Ekka; Mark D. Wenner

  1. By: Francisco J. Buera; Joseph P. Kaboski; Yongseok Shin
    Abstract: We provide a quantitative evaluation of the aggregate and distributional impact of microfinance or credit programs targeted toward small businesses. We find that the redistributive impact of microfinance is stronger in general equilibrium than in partial equilibrium, but the impact on aggregate output and capital is smaller in general equilibrium. Aggregate total factor productivity (TFP) increases with microfinance in general equilibrium but decreases in partial equilibrium. When general equilibrium effects are accounted for, scaling up the microfinance program will have only a small impact on per-capita income, because the increase in TFP is counterbalanced by lower capital accumulation resulting from the redistribution of income from high-savers to low-savers. Nevertheless, the vast majority of the population will be positively affected by microfinance through the increase in equilibrium wages.
    JEL: D91 D92 E44 O11
    Date: 2012–03
  2. By: Gharad Bryan (London School of Economics); Dean Karlan (Economic Growth Center, Yale University); Jonathan Zinman (Dartmouth College)
    Abstract: We examine a randomized trial that allows separate identification of peer screening and enforcement of credit contracts. A South African microlender offered half its clients a bonus for referring a friend who repaid a loan. For the remaining clients, the bonus was conditional on loan approval. After approval, the repayment incentive was removed from half the referrers in the first group and added for half those in the second. We find large enforcement effects, a $12 (100 Rand) incentive reduced default by 10 percentage points from a base of 20%. In contrast, we find no evidence of screening.
    Keywords: Information asymmetries; credit market failures; peer networks; social capital; social networks
    JEL: C93 D12 D14 D82 O12 O16
    Date: 2012–01
  3. By: Boonperm, Jirawan; Haughton, Jonathan; Khandker, Shahidur R.; Rukumnuaykit, Pungpond
    Abstract: The Thailand Village Fund is the second-largest microcredit scheme in the world. Nearly 80,000 elected local Village Fund committees administer loans that reach 30 percent of all households. The value of Village Fund loans has remained steady since 2006, even without new infusions of government funds, and loans go disproportionately to the poor. Based mainly on a custom-built survey of more than 3,000 Village Funds conducted in 2010, this paper evaluates the performance of Village Funds, which it argues are best modeled as altruistic, and do not appear to be subject to elite capture. As expected, profit rates are difficult to model, but the regression analysis shows that loan recovery rates, total lending, credit ratings, and the proportion of loans going to the poor are all higher when a Village Fund borrows additional funds from a formal bank and on-lends to households, as was done by one in five Village Funds. An economic analysis suggests that Village Fund benefits exceed the costs. Most Village Funds are social rather than financial intermediaries; they have little incentive to take risks or to innovate, which explains why Village Fund lending has not kept pace with the growth of the Thai economy.
    Keywords: Debt Markets,Banks&Banking Reform,Bankruptcy and Resolution of Financial Distress,Investment and Investment Climate,Economic Theory&Research
    Date: 2012–03–01
  4. By: Jessica Schicks
    Abstract: This paper measures the over-indebtedness of microborrowers in Ghana. It defines over-indebtedness from a customer-protection perspective, considering borrowers over-indebted if they continuously struggle with repayment and experience unacceptable sacrifices related to their debt. We find that 30% of borrowers in our urban African population of microborrowers are over-indebted. The paper provides a detailed analysis of the sacrifices borrowers experience. In a second step, it tests the risk-management indicators of debt problems as predictors of the customer-protection measurement of over-indebtedness. Over-indebtedness is strongly related to delinquency and to the debt-to-income ratio but not to total debt amounts or to multiple borrowing. We construct a model that correctly predicts 72.6% of cases. However, even the best indicators for over-indebtedness identify only a small portion of cases of over-indebtedness. To protect customers from unacceptable struggles, the industry needs to measure customer experiences directly. Sound risk management is not enough to protect customers against over-indebtedness.
    Keywords: Microfinance; Microcredit; Over-Indebtedness; Debt; Customer Protection; Sacrifices
    JEL: O16 O50 G21
    Date: 2012–03
  5. By: Demombynes, Gabriel; Thegeya, Aaron
    Abstract: The mobile revolution has transformed the lives of Kenyans, providing not just communications but also basic financial access in the form of phone-based money transfer and storage, led by the M-PESA system introduced in 2007. Currently, 93 percent of Kenyans are mobile phone users and 73 percent are mobile money customers. Additionally, 23 percent use mobile money at least once a day. New potential for mobile money has come with the rise of interest-earning bank-integrated mobile savings systems, beginning with the launch of the M-KESHO system in March 2010. The authors examine the mobile savings phenomenon, using data collected in a special survey in late 2010. They show that the usage of bank-integrated mobile savings systems like M-KESHO remains limited and largely restricted to better-off Kenyans. However, what the authors term"basic mobile savings"-- the use of simple mobile money systems as a repository for funds -- is widespread, including among those who are otherwise unlikely to have any savings. Holding other characteristics constant, those who are registered for M-PESA are 32 percent more likely to report having some savings.
    Keywords: Banks&Banking Reform,Emerging Markets,E-Business,Economic Theory&Research,E-Finance and E-Security
    Date: 2012–03–01
  6. By: Anita Campion; Rashmi Kiran Ekka; Mark D. Wenner
    Abstract: Las instituciones microfinancieras (IMF) han tenido éxito proporcionando crédito a millones de prestamistas de bajos ingresos en grupos anteriormente excluidos de los servicios financieros formales, aunque a menudo lo han hecho cobrando tasas de interés que, en opinión de muchos, son excesivas. En este documento se analizan dichas tasas y sus factores determinantes con el fin de entender cómo aquellas se pueden disminuir. Utilizando datos financieros de alta calidad de 29 instituciones de siete países a lo largo de cuatro años, y sobre la base de la información recogida en visitas en el terreno a los clientes, se analizan los patrones de costo y eficiencia en las IMF. Así, se descubre que el perfeccionamiento de la eficiencia operativa es resultado del aumento de la competencia y de la antigüedad de la institución, o del aprendizaje a través de la práctica. Resulta alentador saber que nuestro análisis de regresión arroja patrones de utilidades para las IMF que cobran tasas de interés más bajas. También hemos constatado que poner límites a las tasas de interés disminuye el alcance de estas instituciones entre los pobres, las mujeres y los clientes rurales.
    Keywords: Sector privado :: Microempresas y microfinanciamiento, Sector financiero :: Mercados financieros, tasas de interés, eficiencia, microfinanzas
    JEL: G21 O16 E43
    Date: 2012–03

This issue is ©2012 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.
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