nep-mfd New Economics Papers
on Microfinance
Issue of 2012‒06‒25
four papers chosen by
Olivier Dagnelie
Instituto de Analisis Economico, CSIC

  2. Formal Savings Spillovers on Microenterprise Growth and Production Decisions Among Non-Savers in Villages: Evidence from a Field Experiment By Flory, Jeffrey A.
  3. Financial inclusion in Africa : an overview By Demirguc-Kunt, Asli; Klapper, Leora
  4. Only the Rich Need Apply? A Dynamic Model of Index-Based Insurance Choice By Farrin, Katie

  1. By: Thibbotuwawa, R.M.M.I.; Printhika, B.L.D.S.; Jayasinghe-Mudalige, Udith K.; Udugama, J.M.M.
    Abstract: Household Income & Expenditure Survey (2006/07) data were used to estimate the impacts of ‘Samurdhi’ – the largest state-sponsored microfinance program in Sri Lanka – on the status of household income, health, education, and food and non-food consumption. Propensity Score Matching was used to minimize selection bias. Propensity scores were estimated using a Probit Model to match “treated” households with “control” group to identify the impacts. The results show that Samurdhi possesses a significant impact on household welfare on income, consumption and education, despite the inefficiencies and political interferences associated with distribution of intended services.
    Keywords: Household welfare, Propensity Score Matching, Samurdhi Poverty Alleviation Program., Consumer/Household Economics, Food Security and Poverty,
    Date: 2012–02
  2. By: Flory, Jeffrey A.
    Abstract: This paper uses a randomized field experiment to identify the spillover effects of increased formal savings-use on non-farm business activity and production decisions of non-savers in villages. A panel analysis of 2,006 households in Central Malawi shows that a randomly assigned formal savings encouragement exogenously increases adoption of high-liquidity formal savings accounts in village communities. This increases receipts of cash assistance by non-saving households in the middle wealth-stratum, who may be on the margins for deciding to operate a non-farm business, or start growing cash crops or high-yielding crop varieties (HYVs). The hypothesized channel of effects is that expanded formal savings-use increases liquidity and decreases transaction costs, lowers the cost of making transfers, and thus increases receipts of cash aid even by non-saving households. Increased cash assistance is then linked among these households to increased probability of operating a non-farm enterprise or switching to HYVs or cash crops. This may result from a perception of increased security, which causes households to be more willing to take on higher-risk, higher-reward production activities. To date, little is known about how microfinance affects pre-existing informal insurance practices, and whether the production choices among those who utilize informal practices change as safety nets based on inter-household transfers strengthen or weaken when financial markets expand. This paper helps fill that gap.
    Keywords: Microfinance, formal savings, indirect effects, micro-enterprise, informal insurance, HYVs adoption, Agricultural Finance, Consumer/Household Economics, Crop Production/Industries, Production Economics,
    Date: 2012–06–04
  3. By: Demirguc-Kunt, Asli; Klapper, Leora
    Abstract: This paper summarizes financial inclusion across Africa. First, it provides a brief overview of the African financial sector landscape. Second, it uses the Global Financial Inclusion Indicators (Global Findex) database to characterize adults in Africa that use formal and informal financial services and identify the barriers to formal account ownership. Next, it uses World Bank Enterprise Survey data to examine how the use of financial services by small and medium enterprises in Africa compares with small and medium enterprises in other developing regions in terms of account ownership and availability of lines of credit. The authors find that less than a quarter of adults in Africa have an account with a formal financial institution and that many adults in Africa use informal methods to save and borrow. Similarly, the majority of small and medium enterprises in Africa are unbanked and access to finance is a major obstacle. Compared with other developing economies, high-growth small and medium enterprises in Africa are less likely to use formal financing, which suggests formal financial systems are not serving the needs of enterprises with growth opportunities.
    Keywords: Access to Finance,Banks&Banking Reform,Emerging Markets,Debt Markets,E-Business
    Date: 2012–06–01
  4. By: Farrin, Katie
    Abstract: I present a dynamic expected utility model to explain farmers’ borrowing decisions and observed low demand for index-based agricultural insurance. Results indicate that, in the absence of insurance, only low- and medium-wealth households access credit for farming and consumption. Once insurance contracts become available, however, cases exist in which borrowing initially declines with wealth until a critical wealth level is reached, after which wealthier households take out loans in order to purchase insurance. Implications of simulations suggest that index-based products may not be tailored for the ultra-poor, who must borrow the maximum amount simply to meet consumption needs. As such, researchers piloting index-based insurance programs must seriously consider the effects of liquidity constraints on contract uptake.
    Keywords: Risk and Uncertainty,
    Date: 2012

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